What Are Basic Questions To Ask Before Buying a Franchise?
Submitted by Don Sniegowski on Tue, 2005/10/11 - 00:50.
Every potential franchise owner should ask 10 financial questions, says the head of FranChoice. Those questions:
- How much total investment will this franchise require?
- How much will I need in operating capital reserves to cover losses after opening the franchise until it reaches the breakeven point in terms of cash flow?
- How much extra cash do I need to cover living expenses while I'm starting my franchise?
- How long will it take my new franchise to reach break even?
- How much of my total investment (including capital reserves) do I need to have in cash?
- What standard financing options exist for me?
- What alternative financing options exist for me?
- How much money can I make in this franchise?
- What are the ranges in financial performance of the existing franchisees?
- How financially strong is the franchise company?
Read Entrepreneur magazine's interview of CEO Jeff Elgin,
Interest In Franchising
I saw your posting and thought you’d be interested in a few tips from my client who is a franchise expert at Wireless Toyz because even after someone has made the initial decision to buy into a franchise opportunity, there are seemingly endless checklists of things to consider before choosing ‘the right one.’ President of finance and franchise development of one of the country’s fastest growing companies, Richard Simtob recommends a cold hard look at every one of his top ten selection criteria before making the leap.
1. Choose a business about which you are passionate. If you love what you do, you’ll never “work” a day of your life.
2. Choose a business whose daily tasks align with things you like to do.
3. Ask yourself if the dollar potential of the business will meet your long-term financial goals.
4. Make sure the investment requirements and start up costs fit within your budget. Is financing assistance offered? What is your risk tolerance?
5. Determine if the income potential is sufficient for you and your family. Are royalty payments reasonable and designed for both the company and franchisee to profit?
6. Assuming the product is superlative and demand has been established, evaluate the franchise system itself and make sure it is based on a sound business strategy. Will you be comfortable executing that system?
7. Assess if the brand is solid, recognizable and likely to lead to sales on its own strength.
8. Research the company and its history. Has it been around long enough for most of the kinks to be worked out? Has the concept caught fire?
9. Gauge if franchisees are allowed the level of autonomy and independence you desire. Consider the level of assistance or freedom you would like for real estate, store layout and design, ongoing operational field support, business analysis, training manuals, marketing and advertising.
10. Verify an exit plan and separation strategies that are acceptable to you. Knowing how to get into the deal is only half of the equation.
You may contact Richard Simtob at 866-2FRANCHISE or email him at franchise@wirelesstoyz.com. You may also visit www.wirelesstoyz.com/franchise for more information.
I would suggest that first
I would suggest that first question that should be asked is:
-- What is the innate value of the franchise relationship?
In other words, what are you truly gaining by entering into a restrictive relationship, and do those benefits truly outweigh the costs.
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