5 Things to Consider Before Buying a Franchise

Push Operations
December 10, 2020

Buying a franchise is a major financial, professional, and personal decision. If you want to open a restaurant, but don’t want to set up a whole new business system and brand, franchising may be a good option.

However, like any business venture, investing in and operating a franchise requires time, money, hard work, and dedication. It’s important to do plenty of research and make sure you understand what you’re getting into; especially before you decide to invest in a franchise.

Here are 5 things every potential franchisee should consider:

1. Understand what franchising entails

Before you sign any contracts, it’s important to make sure you have a thorough understanding of the logistics and legalities of buying and operating a franchise. Franchising differs from setting up your own business in some key ways, and you may want to seek the advice of a franchise attorney, accountant, and/or consultant to help you navigate the process.

You’ll also want to do as much independent research as possible on individual franchisers and franchising in general. The more information you have, the better.

2. Figure out what you’ll need and what your franchiser will provide

Each franchise system operates differently according to its size, structure, and culture. Some provide extensive training and support, while others only offer limited assistance. You’ll want to make sure you understand exactly what level of support you can expect to receive from your franchiser, and what you’ll need to bring to the table yourself.

At the very least, you’ll be given the right to use your franchiser's name, menu, and system of business and benefit from whatever resources, training, and support they provide. However, there are some additional costs associated with franchising you’ll need to consider. These include your initial franchise fee and ongoing royalty payments.

Initial fees vary greatly from franchise to franchise. The average is between $20,000 and $35,000, but they can be as low as $10,000 or as high as $100,000. Royalty fees are typically around 5-6% of gross revenue, but also vary. Depending on what franchise system you buy into, you may also be charged marketing fees.

3. Distinguish between U.S. and Canadian franchises

Not all foreign-based franchisers have modified their documents to conform to Canadian law; particularly if you’re considering buying into a U.S. franchise system. It’s important to keep in mind that their agreements may not address Canadian withholding taxes or international supply laws.

It’s a good idea to consult an attorney before investing in a foreign franchise to avoid unforeseen problems or costs.

4. Consult with other franchisees

One of the best ways to get a sense for what franchising entails is to talk to other franchisees about their experiences and what they’ve learned along the way. They’re bound to have insights into what it’s like to work with the franchiser and what level of support you can expect to receive.

Whether you reach out to them by phone, email, or in person, it’s a good idea to have a list of questions prepared. This will help you get the most out of each conversation you have.

5. Establish your goals and objectives

Before you decide to invest in a franchise, it’s important to think about your short- and long-term goals and develop a detailed plan to achieve them. What are you hoping to accomplish? Do you have particular financial and organizational targets you want to reach? Every franchise and individual is different, so focus on the things that truly matter to you.

It’s also important to manage your expectations, and be aware that you’re bound to run into obstacles and bumps in the road on your journey to success. You’ll be better prepared to tackle these hurdles if you have well-developed goals and objectives from the start.

Before you make the decision to purchase a franchise, you’ll want to make sure you’ve weighed your pros and cons and done your due diligence. With the right planning and preparation, you’ll have the tools and know-how you need to be successful.