When considering franchise opportunities, there are numerous factors that go into making a profitable investment. From the franchisor’s reputation to your own personal desire to operate a particular type of business, the more boxes you can check, the more likely you are to find success as a franchisee.
Of course, success is never guaranteed. In fact, data from the Small Business Administration (SBA) indicate that about half of all small businesses fail within the first five years, and this includes franchises. So, if you are thinking about buying a franchise, what can you do to increase your chances of success? Here are some tips from the franchisee attorneys at the Goldstein Law Firm:
Finding Success as a Franchisee: 7 Tips for Potential Buyers
1. Due Diligence
Before buying a franchise, it is critical to gather as much information as possible. Make sure you read (and understand) the FDD and franchise agreement, avoid relying on information the franchisor provides you orally, and prepare a thorough list of questions to ask current and franchisees.
2. Financial Planning
How will you fund your initial investment? How will you fund your first six or twelve months of operations? Many franchisees fail because they do not have adequate financial resources to stay afloat during periods of unprofitability.
3. An Informed Buying Decision
The decision to buy a franchise should be based on facts, not a blind desire to “be your own boss,” and not the promotional materials provided by the franchisor. If you do not know what you are getting yourself into, you are not setting yourself up for success.
4. Understanding of Your Rights and Obligations
What are your rights if another franchisee encroaches on your territory? What are your obligations if your franchisor wants you to install an expensive new point-of-sale (POS) system? In order to protect your profits, you will need to have a clear understanding of the terms of your franchise agreement.
Once you sign a franchise agreement, you are locked in. You are committed to the initial investment, and you are committed to your franchisor for the foreseeable future. Are you ready to take this on? Before you buy a franchise, you need to make sure you are ready.
6. Interest in the Business
Why are you considering a particular franchise opportunity? Is it because you have a legitimate interest in the products or services it offers, or because you think it has market potential? Both are important. If you are not passionate about your business, you may find it difficult to stay committed four or five years down the line.
7. Willingness to Say, “No”
If your franchisor tries to impose an obligation that makes your franchise unsustainable (yes, this does happen), will you be willing to say, “No”? Will you be willing to stand up to your franchisor – and maybe even go to arbitration or state or federal court? Disputes between franchisors and franchisees are common, and many arise when franchisors attempt to overreach in imposing burdensome obligations on their franchisees.
Get Help Reviewing Your Franchise Opportunity
If you are thinking about buying a franchise, attorney Jeffrey M. Goldstein can help you make an informed decision. To learn about our flat-fee services and get started with a free consultation, please call (202) 293-3947 or inquire online today.