Franchise Ownership Risks

What Precautions Can Be Taken in Advance When Buying a Franchise?

Buying a franchise, like anything else, offers the possibility of risk.

You cannot always be 100% sure of what you will get – but you certainly can reduce the risk level through careful investigation of the company and the franchise business opportunity.

Asking questions and doing your research will certainly help you know much about the company you are getting ready to do long-term business with. Reading all you can about the franchise opportunity will also help. As you read and talk to the company representatives, you will think of even more questions to ask. Jotting them down as you think about them will help you remember the questions. Once you obtain the answers it will enable you to know about the company to be able to make an informed decision.

Here are some questions you want to ask before you buy:

  1. What training will be given? Is advanced training available – and at what cost?
  2. Does the company have a proven business model – through time, other successful stores, and thorough training?

  3. Is the company’s staff available for questions and help when needed?
  4. What materials and supplies do you have to buy from them?
  5. If you are starting a new business – will the company help you select a location, get employees, and possibly even help you lease equipment?
  6. Are there royalties to be paid and how are they determined?
  7. Is there any flexibility in product offerings?
  8. What marketing will the company do for you?
  9. Under what circumstances can a franchisee’s contract become terminated? Is there a time period available in which to correct problems before being terminated?
  10. Does the franchise agreement run out? If so, can it be renewed?
  11. What are the procedures for settling differences?
  12. Will you be given an exclusive territory?
  13. How can your franchise be sold – what is necessary?
  14. What rights do you have if the franchisor sells to another buyer?
  15. Is there competition in your proposed area?
  16. Can you take the franchisor to court in your state – if necessary?
  17. How successful are other franchisees?

Some questions for you to answer:

  1. In many cases, a new franchise may not break even in the first year. Do you have money set aside to cover this possibility – or will you or your spouse keep working during that time?
  2. Have you researched the market to make sure there is a demand? What kind of competition is there in your area?
  3. Have you talked to other franchisee’s that have been with the company for some time?
  4. Have you had an experienced franchise attorney look at the Agreement?
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