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Buying a franchise – what you need to know

Is a franchise the right choice for you?

There are plenty of benefits to buying into a franchise rather than starting your own business from the outset. If you buy into a franchise, you’re buying into an established brand by opening a new branch (or taking over an existing one). Not only that, but aspects such a branding, marketing, processes and many other things are already established, meaning you can spend more time growing the business than starting it.  Most importantly, you have support for every step along the way.

However there are a few aspects of franchise ownership that you’ll want to consider before signing up to an agreement, such as the location, fees, contract terms and the start-up costs involved. You’ll also need to ask yourself if follow a ready-made system while following the rules of the franchisor. So it’s important to treat buying a franchise like buying any other business by getting it valued, obtaining advice from your accountant, lawyer and advisers, and doing your research on the business.

The franchisor/franchisee relationship

A franchise offers prospective entrepreneurs a uniform system that’s well established. The franchisor and the franchisee need to work together with a proven business model to be successful. Acquiring a franchise is similar to entering into a partnership because:

  • The experience, skills and desire to work hard (by both franchisee and franchisor) will ultimately make it profitable or not.
  • It’s like a hybrid business model, filling the gap between working for yourself and working for someone else.
  • The franchise system involves two levels of people – the franchisor, who offers their trademark, business name and system, and the franchisee, who pays an initial fee and royalties to operate under the franchisor’s business name.

You’ll also face some additional costs when buying a franchise, such as an initial franchise fee and royalty payments. Advertising fees are sometimes required as well.

Control is another aspect of franchising that’s important to note. Your location and all leaseholds will probably have to be approved by the franchisor, and there’ll be limits on products or services, store design, equipment purchases, operating hours and pricing.

When it comes to financing, a reputable franchisor should be able to help you prepare your financing proposal should you need to take out a loan.  Many financial institutions offer specific franchise financing programs and understand the franchise itself.   However, you’ll probably have to invest some of your own money as part of a minimum investment set out by the franchisor, showing your commitment to the business itself.

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Disclaimer Please note that this is a guide only and should neither replace competent advice, nor be taken, or relied upon, as financial or professional advice. Seek professional advice before making any decision that could affect your business.