Buying a Franchise, Choosing the Right Franchise

4 Things You Need to Know About Starting a Franchise

So many franchisees look back to when they first opened their franchise and think, “If I had known then what I know now …” Here are a few tips about starting a franchise.

 

1. Read the Franchise Disclosure Document

The Franchise Disclosure Document may be a hefty document, but don’t flip through the pages and be done with it. Each franchisor is required to disclose specific information to all potential franchisees in this document to give them a sense of what they’re investing in.

Spend some time reviewing all of the FDD so that you can make an informed decision about a potential franchise.

2. Get to Know the Franchisor Team

Find out everything you can about the franchisor team you’ll be working with for the foreseeable future. Review the business experience, how long each individual has been with the franchisor, and any other details you can about the following positions:

  • Chairman of the Board
  • President
  • Chief Compliance Officer
  • VP, Operations
  • CFO
  • Director of Training
  • Director of Franchise Development
  • Director of Construction
  • Real Estate Director
  • Director of Marketing

Also, find out who you’ll be working with directly on the day-to-day. Will you have a dedicated account representative who will always be available to answer your questions? Having support from experienced franchisor staff is key to this being a successful business endeavor.

3. Create Your Budget

Before you launch, build a budget to help you understand what your first year of expenses will be. Once you know all fees and costs that the franchisor will charge you, you can add to that costs like:

  • Real estate
  • Building modification
  • Inventory
  • Payroll
  • Your own salary
  • Utilities

You’re not guaranteed to make a profit in the first months of launching your franchise (in fact, your goal should simply be to break even), so build your budget for the first year, and include any and all expenses, including paying yourself. The last thing you want is to have invested so much and then run out of money, forcing you to sell or shut down your franchise.

4. Know Your Financing Options

Not every new franchisee has the funds to fully outfit a new business, and even if they do, it’s often still a good idea to take out a loan to conserve cash. There are several financing options to consider, depending on your credit profile.

SBA Loan: The Small Business Association works with banks to provide low-interest rate loans for business owners.

Franchisor Funding: Many franchisors offer financing programs, although the interest rates may not be as good as an SBA loan.

Line of Credit: Another option is taking out a line of credit with your bank. This gives you access to cash when you need it, rather than getting a lump sum up front.

Image: Photospin

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