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What to Consider When Buying a Franchise

Updated April 2024 

Many entrepreneurs who want to become a business owner might be concerned with the risks that come with starting a business from scratch. That’s where franchising comes in. Franchise ownership offers business owners the comfort that comes with following an already established and proven business model. 

While joining a franchise means not having to go it alone, it still comes with the responsibilities of running a business, which is no small task. For anyone thinking about buying a franchise, it’s important to prepare for the role of franchise ownership. In fact, there are specific steps that prospective franchisees can take before buying a franchise that will help set them up for success.  

10 Things to Do Before You Buy a Franchise 

#1 – Perform Self-Assessment

Anyone who wants to start a business, regardless of whether it’s a franchise or a standalone, should evaluate why they want to start a business. It’s a huge responsibility and comes with a lot of hard work. While joining a franchise takes some of the risks out of the equation, it’s not a guarantee that a business will be successful. A few things to consider when evaluating yourself for franchise ownership include: 

  • Make an assessment of your personal skills, interests, and financial resources. Do you understand the basic principles of business management? Do you have an ability to lead a team effectively, which includes delegating tasks and resolving conflicts? Do you have the passion and motivation needed to run a business? Do you meet the financial requirements of the franchise you’re interested in? 
  • Consider what you want your lifestyle to look like and establish your long-term goals. Are you looking for a franchise that requires you to invest yourself full-time or would you like something that allows you to delegate the day-to-day operations giving you more time off? Do you want to supplement your income with a side business or are you looking for something with the potential for a large return on your investment? 
  • Be honest with yourself. Do you really want to follow an established business model with little say from aesthetics to the everyday operations? Or do you prefer to have the freedom to create something from scratch? 

A great place to start is to take FranNet’s Franchise Ownership Quiz to assess your compatibility with franchising as a business model. 

#2 – Research Franchise Opportunities

Currently, there are 4,000+ franchise brands across more than 90 industries in the United States and Canada combined, which gives potential franchisees plenty of options to evaluate. Knowing which one is right for you involves making a decision based on a lot of factors including: 

  • Your interests
  • Your financial status 
  • How much responsibility you want to have 
  • Your financial goals 
  • Where you live (franchises often have territorial restrictions) 
  • And more 

Once you have a shortlist of franchises to choose from, it’s important to thoroughly research them. Not all franchise systems are the same, so you’ll want to make sure you understand the business model and requirements of potential franchises. In addition to checking out the franchise’s track record and doing your due diligence before signing any agreements, you should also talk to several existing franchisees to get various perspectives. A few questions to ask current franchisees include: 

  • What are the pros and cons of the business? 
  • Are there any hidden costs involved? 
  • How long before they became profitable? 
  • How much did they budget and how much did they actually spend? 
  • What is the toughest aspect of building the business? 
  • How easy is it to find employees? 
  • How much support did the franchisor give them?

Fortunately, you don’t have to be alone in the research process. A franchise broker like FranNet can help you to find the perfect franchising fit.

#3 – Attend Franchise Expos & Trade Shows 

Franchise expos and trade shows are events where franchisors showcase their business concepts and opportunities to prospective franchisees. The Great American Franchise Expo and MFV Expositions are examples of these events that connect hundreds of franchise businesses with potential owners. Several key benefits to attending these expos include:  

  • Opportunity to network and gather information from leading industry executives and franchise developers 
  • The chance to engage with franchisors and ask relevant questions  
  • Education programs and seminars run by industry experts (topics include franchise law, financing, and other essential business concepts) 
  • Features franchises from multiple industries and investment levels 

If you’re serious about franchise ownership, then you should definitely consider attending a franchise expo. 

#4 – Review Franchise Disclosure Document (FDD)

Not only should you research the franchise you’re thinking of joining, you should also take the time to read the Financial Disclosure Document (FDD) in its entirety when you do choose a franchise. This document can be long and include a lot of legal language, so it might be worth hiring a franchise attorney to make sure you understand everything in the document including the franchise’s financial performance, fees, and each party’s obligations. The FDD will also include any bankruptcy filings of the franchisor, any litigation it has faced, the training it offers, and more. 

#5 – Conduct Due Diligence

While this is an element of the research process, it makes sense to highlight the importance of conducting due diligence before buying a franchise. Make sure you do the following: 

  • Diligently research the franchisor’s reputation and financial stability 
  • Proactively seek feedback from current and former franchisees 
  • Thoroughly evaluate the risks and benefits associated with the franchise opportunity 

#6 – Evaluate Costs & Financial Projections

Franchises typically have minimum liquid capital and net worth requirements. Not only do you need to be able to meet the financial requirements of the franchise you’d like to purchase, it’s also important to conduct a thorough financial analysis to assess long-term feasibility and return on investment (ROI). Consider the franchise fees, royalties, equipment costs, projected marketing expenses, and revenue projections so that you can calculate the total investment required to buy and operate the franchise. Every franchisee’s situation is different, but you’ll want to get an idea of how much you can make as a franchise owner

#7 – Visit Existing Locations

When looking for a franchise opportunity, it’s important to determine whether or not a franchise has established a solid brand. One way to evaluate this is to visit existing franchise locations in order to observe the operations firsthand. This will allow you to assess: 

  • Customer traffic
  • Employee performance 
  • Overall experiences 

If you are able to visit existing franchise locations, then you’re sure to gather valuable insights that will inform your decision-making process.

#8 – Understand Training & Support

While the quality will differ with each franchise, most franchises will offer some level of training and support to its franchisees. Make sure you assess the comprehensiveness of a franchise’s training program. You should also determine the level of support provided, which includes evaluating ongoing support, marketing assistance, operational guidance, and more. The training and support you receive can be a significant factor in your success as a franchise business owner.  

#9 – Review Franchise Agreement

A franchise agreement is a binding, legally enforceable contract between a franchisor and a franchisee, so it’s crucial that you understand your rights and obligations before signing the agreement. Since it is a legal document, then you should consider hiring a legal professional to help you read and understand it.  

#10 – Consider Location & Territory 

You should make sure there’s a suitable location available for you to open a franchise business. Every franchise will have different criteria when it comes to selecting a location for your franchise business, so you’ll want to understand if there are any territorial restrictions before committing to buy the franchise. Other factors you’ll need to consider when deciding on a location include market demand, competition, demographics, and more. 

Are You Ready to Pursue Franchise Ownership?

Before you take the step to purchase a franchise, it’s vital that you take the time to research and prepare. Making an informed decision is key to your success as a franchisee. The good news is that FranNet is here to help. Our expert franchise consultants can help you understand your personal skills and goals and match you with the right franchise opportunity. They will also guide you through the process of buying a franchise from start to finish answering any questions you have along the way. Schedule your free consultation today to get started! 

Jul 20, 2017