The Process of Buying a Franchise
The first step in buying a franchise is actually taking
a moment to examine yourself and your current finances. This
is probably not an issue if you have a high net worth but
if you’re going to finance a large part of your business
it is a necessary step. You need to be honost with yourself.
Most franchises fail because the new franchisee stretched
themselves too thin through the intitial franchise buying
process.(add finance pdf checklist download later)
If you find that you may need more financial help than you
originally thought, narrow your choice to franchises that
offer assistance in getting a loan or other financing. Check
into whether or not the franchise is approved for SBA loans(link
to BCT page, eventually link to a SBA information page).
These are government loans that franchisors have to be approved
for. If a franchise has been approved for a SBA loans you
can be sure that these are solid establishments.
Determining Franchise Costs
An advantage of using a franchise is the start-up costs
of opening a business are already laid out for you.
You can view a list of start-up expenses in the franchisor’s
UFOC (Uniform Franchise Offering Circular). This disclosure
will list of everything that will be included in your initial
investment.
Costs vary dramatically from franchise to franchise. Some
businesses can get started for as little as $20,000 or less.
The average falls between $100,000 and $300,000 including
franchise fees and start up costs.
Franchise Fee
Almost every franchisor charges an initial fee to offset
the cost of training and initial research that goes into
opening a new franchise location. These fees also vary greatly
but cheaper does not necessarily mean better. Compare what
you get for this buy-in. If there are two similar franchises
and one has a franchise fee of $10K but does little in initial
assistance or training while a competitor’s fee is
$18K but offers on-going training, assistance in finding
a location and numerous other services which is really the
more costly fee?
Other costs to consider.
Depending on the franchise you choose there are almost always
other costs, usually on-going you have to consider.
- Contractor fees
- Location costs
- Equipment purchasing and maintenance
- Sales tax
- Employee wages and benefits
- Advertising and signage
- Construction and repairs
- Interior décor
- Landscaping
- Insurance
- Inventory
- Zoning
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