Franchising is a popular way for people who identify as entrepreneurs to start their own businesses. Ideally, franchisees benefit from the support and established brand of an existing company. However, buying a franchise is not without its challenges. In this blog, we will explore a few key issues that potential franchisees should consider before buying a franchise.
1. Franchise Fees
One of the key issues in buying a franchise is the franchise fee. The franchise fee comprises the initial fee and all ongoing fees, including royalties. The initial fee is the initial cost of the right to use the franchisor’s business model and trademark. Initial fees can vary widely depending on the franchisor, the industry, and the location. They range from several thousand to several hundred thousand dollars. In addition to the initial fee, you are required to pay ongoing royalty fees, marketing fees, technology fees, training fees, and other sums to the franchisor. Sometimes franchisees pay such fees to companies affiliated with the franchisor. Before investing in a franchise, it’s important to carefully consider the financial implications of all these fees.
2. Contractual Obligations
Another key issue to consider in buying a franchise is the contractual obligations that come with it. Franchise agreements are typically long and detailed. They include restrictions on how you can operate the business. This includes requirements for purchasing supplies from the franchisor or limits on the products and services you can offer. Before signing a franchise agreement, it’s important to thoroughly review it with a franchise lawyer to ensure you understand all terms and obligations. The experienced franchise lawyers at Bundy & Fichter PLLC are available to help you understand the obligations and restrictions. Equally important, they can help you know precisely what you are getting for the fees you will have to pay.
3. Support and Training
One possible benefit of buying a franchise is the support and training the franchisor provides, but that can become an issue. The level and quality of support can vary widely among franchisors. Some franchisors offer extensive training and ongoing support, while others provide only minimal assistance. Before investing, you should research the franchisor’s support and training programs. You should talk to existing franchisees to understand their experiences with the company. If you have never operated a business like this before, ask yourself whether you will really get enough training to be competitive in a four- or five-day training program? Get the facts.
4. Brand Reputation
Another key issue to consider in buying a franchise is the franchisor’s brand reputation. A well-established brand can be a significant asset, but a brand with a poor reputation can be a liability. Before investing, research the franchisor’s brand reputation and talk to existing franchisees and customers. Get a sense of how customers perceive the brand. Also, be aware that, even in the strongest of brands, a problem in one unit far from you can impact your sales and profits locally.
5. Territory and Competition
Most franchisees receive no territorial protection. A small fraction receives exclusive territories, but their size and scope can vary widely. It’s important to carefully review the franchise agreement to understand the territory’s size and scope, and to research the competition in the area. In some cases, the territory may be oversaturated with similar businesses or too small. Also, look closely at what rights the franchisor reserves to advertise and sell in your marketing area. If they can offer the same product online and deliver it next door, your “protected” area may be meaningless. If your business requires territorial protection, its absence may make it difficult for you to succeed.
Buying a franchise can be a lucrative and rewarding way to start your own business. However, it is important to carefully consider the key issues before investing. By thoroughly researching the franchise opportunity, reviewing the franchise agreement, consulting with an experienced franchise lawyer, and talking to existing franchisees, you can make an informed decision and increase your chances of success. The franchise lawyers at Bundy & Fichter PLLC are happy to work with you to achieve your business goals.