Buying a Franchise

Buying a franchise is one way of going into business for yourself, but with the support, expertise, reputation, and consumer recognition of an established company behind you.

A franchise is a licence granted to a franchisee to sell a particular product or service in a given area. Franchising has grown from traditional businesses, such as automobile dealerships and service stations, to fast food outlets, correspondence schools, photocopying services, cleaning services, income tax services, photo studios, and many other retail and service sector businesses.

A franchisor is required to provide a potential franchisee with a disclosure document.

Before you buy a franchise, do some research and shop around. You should never enter into a franchise agreement without consulting with a lawyer and an accountant. Before buying a franchise, consider the following:

1. How long has the company been in business, and what kind of reputation does it have?
2. Does the company have a solid credit rating and a sound financial base?
3. Does the company have a good relationship with its current franchisees, and are they making a reasonable profit?
4. Is the market for the company's products increasing or decreasing?
5. Is the territory you've been given of a reasonable size, and is it protected from encroachment by other franchises?
6. Was the franchisor forthcoming in providing all relevant information and business records?
7. What does your franchise fee pay for? The possible options are:

use of the company name and trademark; unique operating methods, special recipes, use of patents; initial and ongoing training and advice; assistance in selecting a location; help to secure financing; expertise in starting a business.

8. What additional, ongoing fees will the franchisor charge you?

These may include providing inventory, business services (such as accounting), lease payments on facilities, and advertising. If the franchisor provides funding, there will also be loan payments.

9. Are you required to spend a percentage of your sales for local advertising?
10. What stipulations does the franchise contract place on your business operations, such as hours of work, employee relations (such as hiring and firing), products sold, recipes, and recordkeeping methods?
11. What rights does the franchisor have to terminate the contract?
12. What restrictions are in place if you wish to sell the franchise?
13. Is the type and size of the business compatible with your interests, skills, and personality?
14. Will the projected return on your investment be worth it, compared to other methods of investing your money?

This is not an exhaustive list of things to consider before buying a franchise. For more advice and information on purchasing a franchise, contact any office of ED&T.