How to Buy a Franchise Business
Are you interested in buying into a franchise? With the system and procedures, it seems challenging. Here's how to buy a business franchise:
Franchising remains a great business opportunity in 2019. In fact, there are nearly 760,000 franchise establishments in the United States.
Business owners prefer franchising because you are inheriting an established brand. In addition, a franchise has a proven business model. You can review actual sales and profit data to verify that the concept is growing rapidly.
Read on to learn how to buy a business. Explore this comprehensive guide on buying franchises including topics such as financing, research, and getting a good deal.
Find a Franchise Opportunity You Are Passionate About
The first step in buying a franchise is identifying the right opportunity. Like any business, it is important to select a franchise that you are passionate about.
Start off by considering industries that you are familiar with and understand how they operate. Also, franchise opportunities under consideration should mesh with your past business experience and acquired skills.
Before you invest in a franchise, substantial analysis is required. Of course, you want to look at sales data and what profit margin is realized. There are many other business indicators to evaluate.
What are the startup costs and franchise fee? What type of operating expenses does the franchise have? Are there any additional fees such as royalties or advertising costs?
This all falls into the category of performing a comprehensive cost-benefit analysis. There are other factors to consider in a franchise analysis.
Perhaps one of the most important factors is the location of your prospective franchise. This is so critical because not all locations are considered equal.
Each geographic location comes with its own set of state and local taxes. There are also state wage laws to consider, as well as rent and population density.
It is not cheap to buy a franchise and significant capital is required. On average, initial franchise fees range from $20,000 to $35,000. Depending on the brand, it could cost upwards of $100,000.
Not many entrepreneurs have that type of cash lying around. This leaves prospective franchise owners searching for financing options.
Some opt to apply for a bank or Small Business Administration (SBA) loan. Others use their retirement savings using a mechanism called a rollover for business startups (ROBS).
ROBS allows you to withdraw retirement savings from your 401k, IRA, etc. without penalties or taxes. Lastly, some franchisors offer financing options.
At this point, you may be feeling overwhelmed. Buying a franchise is not particularly easy and sometimes professional assistance is required.
There are subject matter experts available for franchising placement and finding the right opportunities. They perform in-depth analysis such as reviewing the franchise’s financial health. Among many other services, they also evaluate the Financial Disclosure Document (FDD) and Franchise Agreement.
A Recap of How to Buy a Business
There are many reasons why entrepreneurs choose to buy a franchise. Business owners are able to quickly leverage off the franchise’s brand and product line.
However, the franchise acquisition process is littered with landmines and complexities. A professional service company can ensure that you make a sound investment. If you want to learn more about how to buy a business, contact us to schedule an appointment today.