Joining a franchise is a big decision, so let’s make sure you’re ready.
You’ve been working at the same job for years and it’s time for a change. You’ve heard that franchising can be a great way to start your own business, so you do some research and find a few franchises that interest you.
You know that you need to do your homework before joining a franchise, but you’re not sure where to start. What are the most important things you need to consider?
The biggest challenge people face when researching franchises is not knowing what to look for. They may not be aware of the costs involved, or the fact that they will be obligated to follow the franchisor’s rules and regulations. Many people also don’t put forth the effort to understand the franchise agreement, and this could lead to misunderstandings and disputes down the road.
Here are a few things to keep in mind when you’re doing your research so you can be confident and informed before signing on the dotted line:
1. Do your research
When you’re looking to start your own business, franchising can be a great option. However, it’s necessary to do your research before signing that contract. This means calculating the cost to do business and finding financing solutions, as well as understanding the franchise agreement in its entirety. Another good idea is getting to know the people you’d be working with, and having a realistic idea of what you’re getting into before making any commitments.
Research is critical when making any big decision, and franchising is no different. Make sure you understand the territory, local competitors, the potential ROI (not just the overall gross sales revenue), and what type of marketing support the franchisor offers. All of this information will help you make an informed decision about if you and this franchise are the right fit.
2. Consider the costs and financing options
Before rushing to sign up, get informed about all the costs involved – which consists of not just the initial startup investment, but all the ongoing expenses as well. Additional commodities to factor in could be the cost of real estate, inventory, and any other necessary supplies. In some cases, franchisors may offer financing options to help with the initial investment.
How to finance your franchise
Figuring out how to finance your franchise will be one of the first questions you’ll need to answer. Taking a close look at your personal finances will help you determine how much you’re able to realistically invest. Some possible avenues might be using home equity lines of credit, loans from family and friends, small business loans, or 401k rollovers.
What are the costs of a franchise?
The initial investment for a franchise can range from a few thousand dollars to several million. The average initial investment is around $250,000, but this will vary depending on the franchisor and the specific business you’re looking at.
Ongoing costs will cover things like royalties, brand management, and marketing fees. These fees are typically a percentage of your sales, and they go towards supporting the franchise as a whole. You should also factor in purchasing inventory, employee payroll, building rent, and other costs that go into legally operating a business.
This hopefully seems obvious, but something worth mentioning is that a franchise is a long-term commitment. While your tendency may be to focus solely on the incoming dollar signs, it’s necessary to remain mindful of the ongoing costs of keeping that business up and running.
The term of the franchise agreement is important to understand so that you know how long you’re committing to (generally 10 years with the option to automatically renew). This term protects both the franchisee and the franchisor, with many advantages by having all the details locked in for that period. But just like with any other long term commitment, make sure you’re good to go for the entirety of the term and have a secure sense of what to expect.
Have a realistic idea of how much money you can make
It’s key to have a realistic idea of how much money you can make so you can be prepared to meet any recurring expenses. The franchisor should be able to provide you with some data on average franchisee sales and profitability to help you get a ballpark idea of what to expect, but remember that every franchise is different so your individual results will vary.
3. Understand the franchise agreement
One of the most fundamental steps for success is to fully understand the franchise agreement. This document outlines the rights and responsibilities of both the franchisor and the franchisee, and should be read in its entirety. There could be clauses that you don’t agree with, so remember that you’re bound by the terms of the contract once you sign it. If you spot something you’re not down for, talk it over before signing!
The basics of a franchise agreement
The gist of the agreement is the franchisor’s granting of a license to use their trademarks and business model, as well as the franchisee’s obligations to follow certain rules and regulations. The agreement will also outline the territory in which the franchise can operate, as well as the terms and conditions.
What to look for in a franchise agreement
When you’re reading the franchise agreement, there are a few key points to keep in mind. First, make sure that you understand everything. Specifically, pay attention to all of the franchisor’s obligations – this includes things like providing training and support, as well as approving any changes to the business model.
Just as importantly, identify all of the rules and regulations that you’ll be required to follow, as well as any restrictions on the territory in which you can operate. This way, there won’t be any unpleasant surprises later on down the road.
What to do if you have questions about the agreement
If you have any questions about the franchise agreement, it’s encouraged to ask for clarification before signing. The franchisor should be able to answer any questions you have, and help you understand the terms of the agreement. If they’re not willing to do this, that could be a red flag that this isn’t the right franchise for you.
4. Get to know the franchisor
When you’re considering joining a franchise, it’s helpful to get to know the franchisor. Aspects like their history, their values, and what kind of support they offer are all good bases to cover. By doing your research on the franchisor, you’ll be able to get a better idea of whether or not this is the kind of business you want to be involved with.
The franchisor’s history
The franchisor’s history can tell you a lot about the company. Taking a look at details like how long they’ve been in business, and how many franchises they currently have will give you some insight into their stability as a company, and whether or not they’re likely to be around for the long haul.
The franchisor’s values
The franchisor’s values will give you a good idea of what they stand for as a company. This can be helpful in determining if you share the same values, and if you’ll be able to work well together.
What kind of support the franchisor offers
Another factor is the kind of support that the franchisor offers, such as training and marketing assistance. It’s a good idea to make sure that you understand what kind of support you can expect, and whether or not it will be sufficient for your needs.
Are they a reputable company?
In addition to the above, it’s advisable to double check that the franchisor is, in fact, a reputable company. This can be done by checking out their Better Business Bureau rating, and reading online reviews. If there are any red flags, you’ll want to be aware of them before signing up.
What do their current and past franchisees say about them?
Finally, it’s a good idea to talk to some of the franchisor’s current and past franchisees. This can give you a good idea of what it’s like to work with the company, and whether or not they’re likely to provide you with the support you need.
5. Plan for the future
Something not to be overlooked when joining a franchise is the future. You’ll want to make sure that you have a solid plan in place, and that you’re able to commit for the long haul.
Think about how the franchise will impact your day-to-day life
Put down the rose-colored glasses for a moment and think about how this franchise will impact your day-to-day life. Logistics like whether or not you’ll be able to work other jobs, and how much time you’ll need to dedicate to the business should all be taken into consideration.
You’ll need to examine how this franchise will affect your family and personal life as well. Talking this over with your spouse or partner is a good idea, ensuring that they’re fully on board and up for everything this entails. Discuss the nitty gritty together, answer their questions, and genuinely acknowledge any of their concerns.
Create a plan for how you’ll grow your business
In addition to thinking about the immediate future, working out a plan for how you’ll grow your business will help you set realistic goals and verify that you have the necessary finances in place to reach them.
Although no one likes this part, it’s wise to also think about how you’ll handle potential pitfalls if the business doesn’t take off as planned. Never underestimate the value of having a solid backup plan, and work through various ways of how you could address any hurdles.
So, before you sign up to own a franchise, be sure to do your homework. Be cognizant of what you’re getting into and understand the financial commitment involved. Ask lots of questions and get expert advice if you need it. And, above all, remember that a successful franchise starts with a well-informed and committed owner.
Are you ready to start your own franchise? Schedule a call with us today to discover more about the Paint EZ opportunity!