Buying a franchise – 5 things you should not miss
There are many franchising opportunities in today’s economy and market, which is why it is important for a prospective buyer to have extensive information and deep knowledge as to identify the most suitable opportunity for their goals, in order to ensure the highest chances of success. For example, if you are interested in buying a franchise in industry or field, you should know that the Federal Trade Commission imposes on all franchisors to disclose a document to candidates, consisting of comprehensive information about the offering, so that franchisees can make an educated decision. You should pay much attention to all 23 items of the Franchise Disclosure Document, especially items 19 and 20, which state the earnings per unit and the contact details of present and former franchisees. Whether you decide to resort to expert advice in your financial endeavor or not, here are 5 things you necessarily have to take into account before committing to any franchise.
- ROI: The very first thing you need to assess is the return on investment, taking into account your initial investment. The ROI index is directly proportional to the level of risk of any franchise investment. In order for you to be able to project a more accurate ROI, you need to request the average initial investment and if its ability to generate predictable returns is not as certain as you would want it to be, then this franchising opportunity represent a higher risk for you that you’d like.
- FPR: FPR stands for financial performance representation and it is what you will be able to find out from item 19 of the Franchise Disclosure Document. It will provide you with the answer to the most asked question by prospective franchisees, which is “How much money can I earn?” The FPR should give you information about average overhead, including rent, utilities and others, average operating costs, such as labor and supplies, and the average unit volume.
- Litigation: When you are looking for franchising opportunities, you want to stay away from systems that register a long history of litigation, which you can also find out from the FDD.
- Infrastructure: it will be a lot easier along the way, if you find a franchising opportunity that also offers you support in areas such as initial training, grand opening, marketing and others as such.
- Branding: Through branding, customers and potential clients perceive a business, which is why it is important for franchise buyers to carefully analyze the way franchisors protect the integrity of the brand.
While it is important to consider and evaluate each and every one of the above mentioned aspects individually, it is also important to look at them as an aggregate and identify whether any is negated by the higher power of another.