Lotus Work At Home Mums Blog

Buying a Franchise - What to know

By Leigh Hunt on September 18th, 2007

Franchising can be an excellent way to start a business, often reducing the amount of risk involved compared with starting from scratch.  However, like any business, you do need to do your research before making what is a considerable investment.  Here are some questions you should receive satisfactory answers to before going ahead:

1. What is included in the franchise fee?  It should include training, ongoing support, proven business systems, brand recognition, national advertising and possibly contacts with suppliers.
2. Does the franchisor have a track record?  In other words, is the business model proven to be successful?
3. Is the franchise turning a profit?  The franchisor should be more than happy to divulge the financial position of the franchise.  If they’re not, then alarm bells should start ringing.  Failure to reveal this information could mean that either the franchise is not profitable, or has no track record.  An unprofitable franchise is probably not a good investment for obvious reasons.  A franchise with no track record begs the question of whether the business systems are actually proven, with all possible mistakes having been made and creases ironed out.
4. What competition exists in your territory and how does this community magazine stand out from the competition?
5. Is your territory protected?  The answer is most likely to be yes, but it’s worth making sure this is written into your contract.

Once you’re happy with the answers to the above, make sure you get the contract checked out by a legal representative, preferably with franchise experience.  Whilst this can be costly, it could save you potential headaches and disputes further down the line.  In particular, make sure you are permitted to sell the franchise to avoid disappointment should you need to sell in the future.  And last, but by no means least, ask to speak to at least two other franchisees.  They should be able to give you honest feedback on the quality of support provided by the franchisor and the profitability of their franchises.  Compare the profits, turnover and expenditure of these franchisees with the projections you have been given to make sure you have not been quoted figures by the franchisor that are outrageously wide of the mark.

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