Franchising is a common investment path for entrepreneurs looking for a new start in business. Businesses have been franchising since the 1850s. Although people mostly think of the likes of McDonald’s and Burger King when it comes to franchises, there is hardly business in the world that hasn’t been franchised. With franchising, entrepreneurs pay a fee to a franchisor in order to buy into a proven business system. Investing in a franchise takes away a lot of the difficulty of starting a business from scratch.
So while many people may be interested in opening a franchise, some people are unsure how to go about actually purchasing one. Hopefully this guide will be of some help.
The first and most important thing that an entrepreneur must to do is research. Plenty of research actually. There are countless franchise opportunities in America. Even after you choose the industry that you are best suited for, there were still be plenty of franchise systems to select from.
You should go to the library and find out all of the financial information about the franchises that interest you. You should also perform some rigorous self-examination to get a better grasp of your own strengths. You must also look at your own financial capabilities. And at the same, that old adage has never been truer when buying a business: location, location, location. Once you’ve found the right business for you, it’s recommended that you speak with other franchisees just to get a grasp of how the system operates. Buying a business is such a costly investment. You need to be sure to make the right choice.
Once you find the franchise for you, you will enter the legal sphere. American franchises are regulated by the FTC and require a Franchise Disclosure Document (FDD) be distributed to the franchisee. Legal approval varies from state to state. The FDD will outline all of the financial information that you’ll need to know about the franchise’s operation. It is essentially the first negotiating step in the signing of the Franchise Agreement.
If you and your lawyer are still happy with how the business is shaping up, then it’s time to sign the Franchise Agreement. This form will outline all of the franchisee and franchisors responsibilities. It is a legally-binding contract. There will be some haggling room in certain areas, mostly around territory and support. Pay specific attention to the area that details the fees, as you must seriously understand the financial requirements expected of you before signing on the dotted line.
Once you sign the Franchise Agreement, it is critical that you draft a business plan that will guide your business through its first year and beyond. This will be essential if you have to seeking funding for a third-party institution. Banks and other financial institutions will expect a clear vision for success from the entrepreneur, especially in these difficult economic times. Often times, the franchisor will lend you their expertise in formulating the business plan.
Once you get funding for your business, you will be ready to open the doors of your franchise.
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Donald Cranford is an editor with Franchise Direct, one of the world’s top franchise portals.
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