In a franchise arrangement the franchisee buys the right to use the franchisor's proven methods,trademark and other charcteristics that has made it a success to make money.The franchisor determines the main details of the business such as prices,quality,products,equipment,mode of operation and how much of the franchisee's income he is entitled to.
Buying a franchise does not guarantee business success.Many franchises have failed due to conflict between franchisees and franchisors.
I cannot overemphasise how important it is to research your franchise thoroughly before signing that agreement.
Here are 9 key points to consider before buying a franchise.
1.
How much would it cost upfront to buy the franchise? Are there any other fees you have to make provision.Do you have to rent premises or lease equipment from the franchisor.
What percentage of your annual sales do you have to pay to the franchisor?
2.
How does the franchise make money? Franchisors may make money by running their own establishments, by providing services to franchisors,or just by collecting initial franchise fees from franchisees..
3.
Do you have restrictions as to which suppliers you use? Do you have to buy certain goods or services from certain specific suppliers or from the franchisor? If certain purchases are required, are they going to cost you more than you would otherwise have to pay if there were no restriction on where you could buy them?
4.
Do you get any form of protected territory,to ensure competitors do not buy franchises in your patch which will make it difficult to meet your sales targets.Do you have any guarantees that this would not happen?How long is such a guarantee effective?
5.
Do you get the opportunity to build a collection of franchises in your area?
6.What percentage of the franchises fail and percentage are successful?Is it possible for the franchisor to put his finger on the main reasons for failure and success.
7.
What percentage of franchisees sell their franchise in a year?This will give you an idea of the turnover rate of franchisees.
8.
Find out how much the franchise re-sells for in relation to how much has been invested in it.This will give you an idea of what to expect if you decide the franchise is not for you.
9.
How to get out of your franchise agreement is another very important question to ask the franchisor.This will help you establish if there are any factors that restrict your exit from the franchise if you no longer enjoy it.You also have to find out if there are any restrictions as to who you can sell your franchise to.
These points will come in handy in assessing the franchise.
Till next time goodbye and good luck.
