All the Details You Should Know Before Investing in Franchising

Thinking about investing and you can’t be bothered to create a business from scratch? Franchising serves well for investors who don’t want to take the extra risks with small businesses or the stock market. We are going to give you some general tips that you need to know before fully committing to it. Let’s start off by defining what a franchise even is. A franchise (or franchising) is a method of distributing products or services that involves a franchisor, who establishes the brand’s trademark or trade name as well as a business system, and a franchisee, who pays a royalty and often an initial fee for the right to operate under the franchisor’s name and system.

Personality Type

It takes a specific kind of person to run a franchise. This is why we recommend that you take a moment to deeply reflect on your personality (or do a personality test) to figure things out. With franchising, you do not have much creative freedom. You are just an addition to the already-established system. You will have to follow orders and stick to the program. If you are the “restless painter” type who wants to achieve perfection and do everything his own way, you will not succeed in franchising.

Study the Field

Acquiring already established brands mean that you don’t have to spend as much money on marketing, pricing, and all other issues. But this still does not mean that it becomes a hands-free approach or a get-rich-fast scheme. You will need to heavily educate yourself if you want to succeed. Even after the study period is over, you will need to pour in a lot of your time in order to make it work. A great place to start would be The Federal Trade Commission’s Guide to Buying a Franchise. It provides the most necessary information about franchising. Of course, you are free to look into different literature yourself on how to approach it.

Establish a Budget

Look for all of the fees involved with purchasing a franchise. Don’t just settle for the minimum requirements for acquiring one. Despite already being established, getting a franchise up and running can lead to a lot of unexpected expenses occurring. Even when franchising a well-known brand, you will still need to market the new location.

Don’t Believe Rumors About Investing in Franchising

You need to be aware of the reality of franchising. Franchises fail about as much as any other type of business. The success highly depends on what kind of franchise you choose to invest in. The sooner you can break this folk tale, the better.

Treat the Financial Disclosure Document (FDD) as the Bible

The FDD seems daunting at first, it is quite long, but have no fear. Every little bit of information in the FDD is priceless. It gives you an accurate picture of what kinds of problems, taxes, and miscellaneous things can occur. From bankruptcy filings by the franchisor to the types of training that the franchisor offers the franchisee. As well as a multitude of expenses that aren’t obvious at first glance. If you do extensive research on the FDD, you will have much more educated decision-making than a person who didn’t read it.

Consider Hiring Professional Assistance

Depending on your educational background, you will need people from certain professions that can fill in your blank spots. It will usually involve an accountant for balance sheets, budgeting, etc. But unless you are a lawyer by profession, you will need a lawyer’s assistance. This becomes more and more important as the amount of money you are planning on investing grows. Leyden Legal provides a multitude of legal services with experts in franchising legalities.

Analyze the Demand

This might seem like an obvious thing, but it is still important enough to add here. When you are thinking about investing, you must research the product/service that you would be offering. You need to see if there is an active demand for it so that you can turn a profit. For example, it would be ludicrous to invest in oil during the making of this text. Will the potential franchise continue growing? Will it stagnate? These are thought-provoking questions you must ask yourself. Don’t be afraid to separate some time researching these things properly. After all, it is your money in question.

Explore the Fees

You, as the franchisee, are expected to pay royalties once a week, month, or year. You need to be aware of whether these fees are flat or percentage-based. As well as if there are any separate fees from marketing and advertising.

The Restrictions

Read-up on the rules of franchising. As we have previously mentioned, you will not have complete freedom to do whatever you want with the business. The franchisor will (most of the time) only want you to follow procedures and that’s it. This is why it’s important to know whether you can handle this type of arrangement.