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Before investing in a franchise system, carefully consider how much
money you have to invest, your abilities, and your goals. The following
checklist may help you make your decision.
Your Investment
• How much money do you have to invest?
• How much money can you afford to lose?
• Will you purchase the franchise by yourself or with
partners?
• Will you need financing and, if so, where can you obtain
it?
• Do you have a favorable credit rating?
• Do you have savings or additional income to live on while
starting your franchise or in case the business fails? |
Your Abilities
• Does the franchise require technical experience or relevant education,
such as auto repair, home and office decorating, or tax preparation?
• What skills do you have? Do you have computer, bookkeeping, or other
technical skills?
• What specialized knowledge or talents can you bring to a business?
• Have you ever owned or managed a business? |
Your Goals
• What are your goals?
• Do you require a specific level of annual income?
• Are you interested in pursuing a particular field?
• Are you interested in retail sales or performing a service?
• How many hours are you willing to work?
• Do you want to operate the business yourself or hire a manager?
• Will franchise ownership be your primary source of income or will it
supplement your current income?
• Would you be happy operating the business for the next 20 years?
• Would you like to own several outlets or only one? |
Selecting a Franchise
Like any other investment, purchasing a franchise is a risk. When
selecting a franchise, carefully consider a number of factors, such as
the demand for the products or services, likely competition, the
franchiser's background, and the level of support you will receive.
Demand
Is there a demand for the franchiser's products or services in your
community? Is the demand seasonal? For example, lawn and garden care or
swimming pool maintenance may be profitable only in the spring or
summer. Is there likely to be a continuing demand for the products or
services in the future? Is the demand likely to be temporary, such as
selling a fad food item? Does the product or service generate repeat
business?
Competition
What is the level of competition nationally and in your community? How
many franchised and company-owned outlets does the franchiser have in
your area? How many competing companies sell the same or similar
products or services? Are these competing companies well-established,
with wide name recognition in your community? Do they offer the same
goods and services at the same or lower prices?
Your Ability to Operate the Business
Sometimes, franchise systems fail. Will you be able to operate your
outlet even if the franchiser goes out of business? Will you need the
franchiser's ongoing training, advertising, or other assistance to
succeed? Will you have access to the same or other suppliers? Could you
conduct the business alone if you must lay off personnel to cut costs?
Name Recognition
A primary reason for purchasing a franchise is the right to associate
with the company's name. The more widely recognized the name, the more
likely it will draw customers who know its products or services.
Therefore, before purchasing a franchise, consider:
• The company's name, how widely recognized it is, and if it has a
registered trademark.
• How long the franchiser has been in operation.
• If the company has a reputation for quality products or services.
• If consumers have filed complaints against the franchise with the
Better Business Bureau or a local consumer protection agency. |
Training and Support Services
Another reason for purchasing a franchise is to obtain support from the
franchiser. What training and ongoing support does the franchiser
provide? How does their training compare with the training for typical
workers in the industry? Could you compete with others who have more
formal training? What backgrounds do the current franchise owners have?
Do they have prior technical backgrounds or special training that helps
them succeed? Do you have a similar background?
Franchiser's Experience
Many franchisers operate well-established companies with years of
experience both in selling goods or services and in managing a franchise
system. Some franchisers started by operating their own business. There
is no guarantee, however, that a successful entrepreneur can
successfully manage a franchise system.
Carefully consider how long the franchiser has managed a franchise
system. Do you feel comfortable with the franchiser's expertise? If
franchisers have little experience in managing a chain of franchises,
their promises of guidance, training, and other support may be
unreliable.
Growth
A growing franchise system increases the franchiser's name recognition
and may enable you to attract customers. Growth alone does not ensure
successful franchisees; a company that grows too quickly may not be able
to support its franchisees with all the promised support services. Make
sure the franchiser has sufficient financial assets and staff to support
the franchisees.
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