What to ask before you buy a franchise

Starting a business from scratch is a daunting proposition. For almost any new company, the entrepreneur must find a suitable location, hire skilled employees, create a product or service that fills an untapped niche, set up a reliable accounting system, amass substantial working capital, and so on. Such start-up challenges are why franchises are often a popular alternative to “going it alone.” The established brand and proven sales record of a successful franchisor can help budding companies survive those crucial start-up years.

But before investing your hard-earned savings into a franchise business, step back and ask the following five questions:

  • What are my biggest strengths and weaknesses? If a particular franchise requires sales expertise, ask yourself whether you’re comfortable in that role. Some people are better at managing employees and greeting customers; others love to develop products in the back room or track sales at the computer. If the business requires technical know-how (such as home decorating or auto mechanic expertise), make sure you’re ready to bring that specific skill set to the business. If you can’t stand the smell of coffee, don’t expect to thrive in a gourmet coffee franchise.
  • What help can I expect? Some franchisors offer support through location research, initial training, marketing and management advice, and ongoing workshops. Others throw you in the water and expect you to swim — or sink.
  • How much will it cost? An initial franchise fee can run from several thousand to several hundred thousand dollars. In addition, you may need to cover rent, inventory, operating licenses, insurance and other upfront costs. As the business ramps up, you may be required to pay royalties as well, often based on a percentage of your weekly or monthly income.
  • What are the restrictions? Before you sign that contract, make sure you understand the company’s operational requirements. Hours, signage, employee uniforms, advertising, accounting systems, pricing, suppliers — all may be dictated by the franchisor. Don’t wait until the business is up and running to discover such stipulations.
  • Why do I want to purchase this franchise? This is a fundamental question and one you’ll need to explore deeply, perhaps with the help of a disinterested third party. A business that’s fulfilling and lucrative for one person may lead to disaster for someone else. Conducting a thorough evaluation of the industry, the franchisor, the products, and your own interests will be time well spent.