If you’re thinking about buying a franchise, don’t forget to do your research before you invest. Generally, a successful franchise is based on a recognized brand name that has already proven to be a good business idea. One advantage is that you don’t have to start from scratch because you already know a few things about the business. When you buy into a franchise many things provided will help you to get started, such as:
- A detailed operational manual for business.
- Contact information of financial institution for those searching for start-up capital.
- Guidance on staff hiring and training.
- Location advice.
Although this may sound like a perfect set up, before you buy into a franchise you should be cautious and analyze the entire situation. Be sure that you carefully consider all the pros and cons of owing a franchise. Before you buy be aware of the risks you may encounter along the way. For example:
- Unrealistic revenue forecasts. The assessment of a glowing revenue forecast that is based on historical data doesn’t always happen. An idea that is profitable in one area may not be in another. Research the market for your area using several different resources. This will help you determine the amount of revenue that you will need to cover the franchise overhead and still make a profit.
- Unreliable franchisers. Researching the franchise thoroughly is vital to the success of your business. Start by contacting other franchises to gather information about their relationship and experiences with the company pertaining to support, training, and the quality of delivered goods. How many of their franchises have failed and the reason(s) they failed?
- Unverified business model. The initial stages of a fast growing franchise can be lucrative, but it’s not a substitute for proven marketability. An idea may look good on paper but the reality of the marketplace may show the need for some major tweaking to be profitable. Use caution if you’re considering a franchise that is not well known rather than one that has a rock solid track record or you could risk potentially losing your investment.
- Unexpected expenses. In addition to the initial expense for franchise rights, you will incur multiple out-of-pocket costs. The extra expenses would include things such as; advertising, legal fees, inventory and supply costs, and even additional fees for staff training. Additionally, you will pay a continuing royalty on sales, even if you don’t make a profit. It’s important to factor in these expenses so that your business doesn’t fail before it gets started.
Starting a new business can be confusing. At Summit CPA we offer multiple resources and techniques to help you get on the right track to attain your goals. For more information on how we can be of assistance to your new business, contact our office at (866) 497-9761 to schedule an appointment with our advisors.