The Basics of Buying a Franchise Business

In 2018, there were nearly 760 thousand franchise establishments in the United States, and that goes to show how successful this business model is. If franchising weren’t so lucrative, then franchises wouldn’t be nearly as popular as they currently are. Buying a franchise is a great way to start a successful business while avoiding the challenges associated with developing a new intellectual property. As a franchisee, your franchisor is invested in your success, so they will work hard to help your new franchise turn a profit. If you’re thinking about buying a franchise, then check out this general overview of the basics of buying a franchise.

Pros

Established Brand

With a franchise, you don’t have to heavily market a new intellectual property; people already know who you are and what your business is about. Marketing is extremely expensive, so you’ll save a lot of money by leaning on the brand’s existing image. Furthermore, most promotional materials will be provided by the franchisor so that you don’t have to spend the time and money to come up with new marketing strategies.

Training Materials

It’s not easy to properly train your employees. Luckily, the franchisor has done most of the work for you. Since a large percentage of your goods and services are standardized by the franchisor, there are training materials for every situation, product, and service that your employees will have to deal with. Your franchisor wants you to succeed, so any products, services, and promotions are well thought out, and training materials and protocols are usually updated.

Supply Chain

As a franchisee, you won’t have to spend a lot of time dealing with many different suppliers. Most of your products will be provided by the franchisor, and if you’re buying a pre-existing franchise, then a supply chain will already be in place. Since you won’t have to navigate new relationships with many different suppliers, it will be easier to start your business and maintain stable access to the goods and services that your business depends on.

Cons

Little Flexibility

While you may have some autonomy, most of your products, marketing materials, and standard operating procedures will have to fall in line with the franchisor’s standards. This can be very frustrating for people who like to innovate and improve. As a franchise, you’re bound to any agreements with the franchisor, so you may be unable to improve upon many procedures, goods, and services due to the franchisor’s standards.

Customer Preconceptions

Brand recognition can be a good thing, but it can also work against you. If someone has had a bad experience with your brand at another franchisee’s store, then they will be less likely to visit your franchise. It’s not particularly fair, but that’s just a part of running a franchise. Any local or national scandals that are related to the brand will affect your business.

Associated Costs

If you’re not buying a pre-existing store, then you will have to pay for land and equipment. Even if you’re buying a pre-existing store, you’ll still have to pay for licensing fees, and the storefront may need updates and renovations. Like any business, you will have to account for your employees’ wages, and the price of most goods, inputs, and royalties will depend on your contract with the franchisor. Furthermore, you will probably need to enroll in relevant training and certification programs to comply with local, state, and federal health and safety standards.

How to Become a Franchisee

There are two primary ways to buy a franchise; you can buy a pre-existing franchise, or you can reach out to a franchisor to start your own operation. Buying a pre-existing store from a current franchisee is pretty straightforward. You simply have to purchase the store and comply with the franchisor’s terms. If you plan on opening a new store, then you should reach out to the franchisor. Most franchisors have a standard operating procedure for dealing with new or aspiring franchisees.

They may have strict requirements for your building’s dimensions, facilities, and location, so if you already own a building, then you must understand that it may not comply with some franchisors’ requirements. Franchise laws vary by jurisdiction, so the franchisor will help you navigate the legal minutiae of starting a franchise in your area.

Alex