6 things to remember when buying a franchise

franchiseSetting up as a franchise is almost a no-brainer for the budding entrepreneur who wants returns without the risk. Some of the biggest names on the high street operate under the franchise model, and if you were running one yourself, that’d mean a ready-made customer base that recognises and actively looks for the brand.

Out goes the uncertainty associated with starting a business from the ground up, and in comes the assurance of a business model that has already been proven many times over. From established enterprises like McDonald’s and Subway to up-and-coming opportunities such as a Phoenix e-cig franchise, there’s an operation to suit your particular corner of the market.

But before you hand over your start-up cash, make sure you ask the right questions. All too often wannabe tycoons rush into business on a whim, often only on the basis of liking a particular brand. That’s not going to help you hit the ground running, so make sure you get compelling answers to these six questions.

1 How much capital is required?
Some franchise prices cover everything from premises to initial stock to refitting a store.
Yet others will only get you the right to trade under a particular name, with all other costs footed by you. Make sure you know what your first outlay will include so there aren’t any bank account-collapsing surprises two weeks before opening day.

Take care when assessing how best to raise your capital. While you may think that re-mortgaging your home is the best way to a raise large lump sum, bank-lending packages, worth up to 70 per cent of the franchise cost, could be a more secure option (see ThisisMoney.co.uk for more). You don’t want the security of your home riding on the success or failure of your new venture.

2 Is there demand for this business?
Along with your financial position, this should be the first point to consider. When weighing up whether to go into business (and not just as a franchisee), you need to make sure that business is wanted by consumers – and that demand will continue. When researching a franchise’s viability, a detailed SWOT (strengths, weaknesses, opportunities, threats) analysis should be carried out. If you require a business loan, it’ll be among the first things a bank asks for.

3 What are you signing up to?
Just because you recognise the name, you shouldn’t assume the company you’re buying into plays fair. Run your contract past a solicitor with experience of small business start-ups before signing.

4 What support is on offer?
As well as a good grounding in the product or service you’re signing up to sell, you should also get access to detailed market information and sales data compiled by the franchisor. This will help you develop your business plan. Find out what sort of marketing and training support will be available.

5 Is there a selection criteria?
Are you the right fit for the franchisor? Some companies will ask that any new franchisee has experience of their sector, or has a certain level of training beforehand.

6 What are your chances of success?
This is where your investigative abilities should come to the fore. If you’re looking to take over an already established franchise, find out how it’s doing. Is the existing franchisee still happy? How’s the rest of the team? What do customers think of the place? Have any competitors recently appeared? If you’re starting afresh, see if you can speak with an existing franchisee to get the lay of the land.

Business advice site StartUpDonut.co.uk has more tips for budding franchisees here.

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