Before Buying A Franchise, Do Your Homework – J. LaRosa, Marketdata

Before Buying A Franchise, Do Your Homework – J. LaRosa, Marketdata

Nov. 19, 2018

Many people today are looking for alternative careers and a way to become their own boss. But, they don’t want to start a business from scratch and seek a tested and proven system with a track record. Franchises can meet this need. However, reality check…franchises do fail sometimes, and it’s not always a path to riches and stress-free work. And, the investment can be substantial. Many franchises require several hundred thousand dollars in start-up capital and a significant net worth.

Issues that can come up, which the franchise owner or trade association will not tell you about, can include disputes over protected territories, an inability to modify your marketing and services to local market conditions, overpriced products that must be purchased from the parent company, a lack of input, and disagreements over marketing campaigns, to name a few.

The first thing anyone considering purchasing any franchise should do is to obtain the FDD, or Franchise Disclosure Document. After submitting an application, this should be given to you by the franchisor. The FDD is invaluable, since it describes the business in detail, the terms of the agreement, average annual revenues and profit margins of existing franchises, start-up costs, ongoing costs, restrictions, plus a list of current franchise owners and their contact information (name, address, phone).

The FDD should be read carefully, and you should speak to a half dozen franchise owners of your choice to ask them how satisfied they are with the system, if there are any problems, and how successful they have been.

One should also check other sources to determine the independent outlook (nationwide or in your local city) for the industry or market the franchise operates in. For example: a janitorial service franchise, a day care center, a weight loss clinic, etc. — check guides, or a market research company, or a local Chamber of Commerce or Small Business Development Center. They can let you know if the market is growing, if it’s over-saturated, if there are major changes taking place in the industry, etc.

Marketdata publishes a wide variety of Industry and Market Overviews for just $79 and $99. These 15-35-page reports discuss the nature of the market, key trends and issues, operating ratios, market size and historical/5-year forecast growth rates, end-user demand factors, and a reference directory of industry sources.

Spending a few hundred dollars on some research and taking the time to investigate the business, will pay off in terms of giving you a REALISTIC picture of what the franchise and your work day and career will be like. You may find out that the monetary investment or number of hours you have to put in to run a retail operation, for example, is higher than you thought. Better to know that BEFORE jumping in than after.

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