Franchising has become an attractive option for many entrepreneurs looking to start their own businesses. With the promise of a proven business model, built-in support system, and established brand recognition, it’s understandable why more and more people are considering franchising opportunities.
Like any other business venture, there are important factors that need to be considered before jumping into a franchise agreement. Keep reading to discover 7 key things you must know before taking the plunge!
Initial and Ongoing Costs
If you’re considering investing in a franchise, take the time to fully understand the financial commitment involved. Beyond the initial franchise fee, there will be ongoing costs such as royalties, marketing fees, and other expenses that should factor into your decision-making process. For those considering Subway franchising opportunities, for example, the total investment may range between $116,000-$263,000 for US residents and $102,000-$234,000 for Canadians. While owning a franchise can be a great way to be your own boss, you must do your due diligence and ensure you have a clear understanding of the financial implications before making a commitment.
Understand the Franchise Agreement
A franchise is an agreement between the company that owns the brand (the franchisor) and the person or business buying into it (the franchisee). The franchise agreement is a legally binding contract between the franchise and the franchisee. It lays out what each side can and can’t do. It’s important to carefully review and understand all aspects of this agreement before signing on the dotted line. Don’t hesitate to talk to a lawyer to make sure you understand everything in the terms and conditions. The last thing you need is to be surprised by unexpected clauses or obligations after investing your time, money, and effort into a franchise.
Training and Support
One of the most attractive benefits of franchising is that the company giving out the franchise will provide training and support. The success of any franchise largely rests on the quality of initial training and support given by the franchisor.
A thorough understanding of the franchisor’s training and support system will help you make a well-informed decision on whether or not to buy a franchise. Ensure that the franchisor has a comprehensive training program in place that covers everything from finance, advertising, marketing, and operations. Check if the franchisor offers ongoing support after your business has started. You want to work with a franchisor who is dedicated to supporting and helping your business succeed and expand over time.
Market Research
The purpose of market research is to understand the demand for your product or service in your local area. This means that you need to identify your target audience, assess their needs and preferences, and determine how much they are willing to pay for your product or service.
Concurrently, evaluate your competition and their offerings. See what they’re good at and where they can improve. That’ll help you figure out how your product or service is different from theirs. Make sure people know why they should choose you instead. Finally, demographic factors such as age, gender, income, and family size may also impact the success of your business. All this information will help you identify the right strategy to position your business effectively.
Territory Rights
Will you have exclusive rights to a specific area or will you be competing with other franchisees? The answer can affect how much your business expands in the future. Having exclusive rights to a territory can mean less competition and more potential for growth, as you are not competing with other franchisees for customers. On the other hand, if you are facing competition from other franchisees in the same territory, you will have to work harder to stand out and attract customers. Knowing your territory rights is perhaps one of the most critical considerations when evaluating a franchising opportunity.
Franchisor’s Track Record
Next, find out how long the company has been in business and its success rate. Look into the financial stability of the company and whether they have had any legal issues in the past. It’s also a good idea to speak with other franchisees within the system to get their perspective on working with the franchisor. A franchisor with a solid track record and a good reputation will give you confidence in your decision to invest in their franchise.
Exit Strategy
The thrill of starting your own franchise business can sometimes overshadow the need for an exit strategy. But it’s essential to have a plan in place, should you want or need to sell your franchise in the future. The franchise agreement should outline the process of selling and transferring ownership, including any fees or restrictions that may apply. Understanding this upfront will help you make informed decisions about your investment.
Pursuing a franchising opportunity can be a rewarding path to business ownership, but it’s essential to approach it with thorough preparation and due diligence. Armed with these tips, you’ll be well-equipped to make an informed decision. Taking the time to gather all the necessary information and seeking professional advice where needed can make a significant difference in your franchising journey. The ultimate goal is to find a franchise that aligns with your business aspirations and increases your chances of success.
