What to Do Before Buying a Business Franchise

In order to prosper financially, it’s important to secure multiple sources of income. A single source of income simply isn’t enough these days, and accumulating money in a savings account isn’t going to hold you over until retirement.

People are constantly looking for investment opportunities in order to grow their savings. One of the minimal-risk investments you can make is to buy a business franchise. However, it’s more complex than simply buying a business. Not all business franchises have the same level of risk and potential for profit. Here are some things you need to consider before committing to a business franchise.

Identify Your Financial Capacity

Identifying your financial capacity means more than just looking at your bank statement and budgeting your investment money for a franchise. You have to consider all your funding, including franchise business loans, and other assets you can use to open more options for you. Knowing your financial capacity will help you narrow the list of business franchises within your financial reach.

Do Your Due Diligence

Once you have a list, it’s important to conduct your due diligence on the business franchises that you’ve shortlisted. Some things to consider are franchise profitability, the market you’re introducing the franchise to, and the franchise system itself.

A prime example of why it’s important to conduct your due diligence on your target market is so you can avoid situations like this: where S.F. has a tendency to run burger franchises out of town. There are many franchise opportunities in California, and it’s just a matter of finding the one that’s right for you and your target market.

You have to be prepared to walk away from an offer when you notice any red flags while you conduct your due diligence. Generally, any misleading information that presents the franchise as more profitable than it actually is should be regarded as a red flag.

Ask Existing Franchisees

One of the best ways to determine the actual profitability of a business franchise is to ask people who currently have a business franchise from the brand. They can give you valuable information on things you wouldn’t be able to find on paper. Factors such as franchisor support, advertising initiatives, and approximate start up costs are some of the information that you need to prioritize.

You don’t have to go looking far to find existing franchisees either because their contact information can be found on Item 20 of the Franchisor’s Franchise Disclosure Document.

Interview the Franchisor Thoroughly

While you can conduct the interview yourself, you’d be far better off conducting the interview accompanied by a qualified professional who knows how to interpret the franchisor’s disclosure document. An experienced franchise lawyer will help you avoid any legal problems you may have with a particular business franchise.

Another added benefit of bringing a franchising lawyer is that they are also trained to negotiate favorable terms for their clients. Most franchise agreements can be modified as long as the franchisee requests to do so.

Business franchises are a hefty purchase. Like all other high-value investments, it’s important to understand what you’re getting yourself into so as to mitigate the risks involved. All investments are inherently risky. It’s really just a matter of managing the risks you’re willing to take.

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