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A Quick Checklist For Buying A Franchise

These days in both Australia and New Zealand, you’ll find franchises operating in almost every type of business and industry. The good news? If you’re looking to buy a franchise, you’re literally spoilt for choice. The other news? The more choices you have, the harder it can be to actually make a decision. And, while there are plenty of franchises to choose from, all with varying levels of complexity and cost, not all franchising opportunities are created equal. We know a thing or two about franchises, and we want to help you make an informed decision. That’s why we’ve put together this article, which features a quick and handy checklist for buying a franchise, so you can be confident in your decision when you decide it’s the right time for you to buy. .

Do Your Background Research

First things first: do your background research. It definitely helps if you already have an idea of the business or industry you want to get into. Once you’ve got that in mind, it’s time to do your research. If you live in Australia, you’ll find a comprehensive web-based listing of over 1,300 franchise systems on The Franchise Business Directory. If you live in New Zealand, you can head to Franchise New Zealand for all the information you need to know about franchises in NZ. Each website contains a directory of franchises available to invest in, cross-referenced by category, so finding a particular franchise or type of business is simple! Spend some time checking out the different opportunities available to you, taking note of things like cost, training and so on.

The Costs and Fees of Buying a Franchise

When it comes to the costs and fees involved with buying a franchise, every franchisor is different. However, in all franchise programs, franchisors either directly or indirectly collect payments from franchisees for the right to use their brand and systems. The cost of buying a franchise can range from as little as $5,000 to as much as $1 million or more. Depending on the franchise, franchisees are also often required to pay ongoing fees for franchise support, which is usually either a fixed monthly amount, or calculated based on how much you earned for the month. Fixed monthly fees can range from $50 per month and up, while percentage fees can range from 2 – 15%. Before buying a franchise, make sure you know what the fees are and how they’re calculated.

Type of Business

Another vital thing to consider before buying a franchise is the position of the franchise in the market. You should not only look at the particular franchise in relation to its own activities, but also make an informed assessment of the forecasts of the overall industry or trade it falls under. Franchise businesses usually fall under two categories: goods or products, or the provision of services. Do your due diligence and make sure there is a need in the market for what the franchise is selling or providing. You don’t want to buy into a franchise that looks good on paper but in reality, isn’t an in-demand product or service.

The Checklist

Once you’ve found a franchise you feel pretty confident about purchasing, you may be ready and eager to sign on the dotted line. However, it’s vital you do your research and make sure this seemingly ideal franchise is the right one for you. Below are 22 yes or no questions to tick off before you commit to investing in a franchise. If you answer no to any of the below questions or are unsure, it’s important you carry out some further investigation of the franchise to make sure it’s the right fit for you.

The Franchise

  • Does the franchisor have a proven successful track record?
  • Do the owners of the franchise have the right industry skills and knowledge?  
  • Is the franchise financially secure?
  • Does the franchisor make a point of screening its potential franchisees?
  • Is the franchise profitable?

The Product or Service

  • Is there a demand for the product or service the franchise is selling?
  • Are sales across the industry strong?
  • Does the franchise’s product or service stand strong against what its competitors offer?
  • Is the product or service priced competitively?
  • Is there potential for growth in the industry?

The Market

  • Does the franchise offer exclusive territories?
  • Does the territory you’ll be operating in have sales potential?
  • Is the competition fierce in the territory you’ll be operating in?
  • Are the other franchises in or near your territory successful?

The Contract

  • Are the fees and costs of buying the franchise reasonable?
  • Are the conditions of renewal, termination and transfer reasonable?
  • If there is a condition for the franchisee to meet annual sales quotas, is it acceptable?

Franchisor Support

  • Does the franchisor offer training – both initially and ongoing?
  • Does the franchisor offer any type of financing?
  • Will the franchisor offer you any marketing help?
  • Will the franchisor help with leasing, story layout and design (if applicable?)

This is certainly not an exhaustive checklist of things you need to tick off before you buy a franchise. However, if you work through this checklist before you make your decision, you will certainly be at less risk of rushing headfirst into an ill-informed and a possibly disastrous decision.

*Written by Paul Henshall at Action Coach Business Coaching
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