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Choosing a franchise to buy is an exciting endeavor. Your search for a possible franchise in an industry you love feels exciting. You might also look at franchises that have nostalgia for you and that you want to bring to your area.
While the journey is exciting initially, the process can start to make your head spin at all the various considerations. Where will you open shop? How much will you have to invest to get the doors open? What happens if things don’t go according to plan?
As you navigate the documents and disclosures, here are seven areas you’ll want to consider before you decide which franchise is the right one for you.
1. Location, Location, Location
You’ve likely heard this rally among realtors selling homes, but what about franchisors selling franchise opportunities? When considering which franchise to buy, you should look closely at where your franchise will be located and whether you’ll be operating under protected territories.
The territory where you can operate with your franchise can directly impact your success. This territory allows you to know whether you’re operating in a place where your clientele is located, the size of your territory, the setting where you’ll be operating, and more.
Understanding this before you sign your franchise agreement is important so you know how to approach your new market best.
2. Financial Projections and Performance
When you buy a franchise, you want to know how much money you can expect to bring in. Those financial projections are crucial as you plan your own budget for this new venture.
In the past, franchisors couldn’t share the financial performance of their franchise locations. That has changed recently, but although sharing this information is legal, many still hold it close to their chest.
If you want to analyze the opportunities for profitability before you enter into an agreement, ask your franchisor for this information to understand the financials better before you dive in.
3. Total Estimated Investment
Similar to financial projections, you also want to understand what your estimated investment will look like. While franchisors readily disclose the initial investment price, the estimated actual investment and ongoing fees are equally important to understand. These costs could include construction costs, equipment costs, and more. These costs can be unwelcome if you don’t expect to pay them when entering the franchise agreement.
4. Renewal Rights
As you continue your journey as a franchisee and see success, you will likely want to continue and renew your rights to that franchise location. However, some franchises limit how often you can renew after your initial franchise ownership term ends. Knowing how many renewals you’re entitled to upfront can help you better understand what’s available along your franchise ownership journey.
Before you enter into a franchise agreement, knowing whether you retain the right to renew and how many renewal periods you have available will help you better understand and predict your future as a franchise owner.
5. Dispute Resolution
Sometimes, disputes will happen. When those disputes come up, you’ll want to know how they will be resolved before the resolution process begins. Specifically, knowing who will pay should a dispute arise is important.
Sometimes, a franchisor will require that a franchisee pays for attorney fees when there is a dispute. This can be the case even if the franchisee wins the dispute. Looking out for who will be responsible for those fees before entering into a franchise agreement can put your mind at ease.
You’ll also want to know where the dispute will be resolved. Many franchisors require disputes to be resolved where their corporate offices are located. You may need to travel to resolve the dispute if this is the case.
6. Right to Acquire
So often, when you enter into a franchise agreement, you think about all the business coming your way. However, it’s equally important to consider what would happen if you needed to move or transfer ownership to someone else for a specific location. In this case, your franchise agreement will include a section that states the franchisor will have the right to acquire the assets of your business.
Many prospective franchisees find comfort that the franchisor can acquire units when necessary. Look for this clause in your contract to better understand what happens if you need or want your franchisor to acquire a unit and what that could mean for you financially.
7. Ownership Transfer
Franchisors sometimes allow the franchisee to transfer their units to a new owner. This process can be rewarding for family members transferring a franchise to their children or local business owners handing over the keys to their franchise to a new, trusted owner with local ties.
If this is your strategy when entering into franchise ownership, it’s a good idea to review the franchisors policies regarding ownership transfer before agreeing.
Each area is important to consider or be aware of as you enter into a franchise agreement. While these might not be the fun parts of franchise ownership, they are good to remember as you take your next steps with a specific franchisor. Doing your due diligence will help you feel more confident as you continue on this path to franchise ownership.
Kimberly Crossland is the founder of Roadpreneur and Cruisin' + Campfires, two companies designed to keep families together and living in freedom through travel and entrepreneurship. The goal of both businesses is to inspire meaningful change through the power of a strategic, thoughtful approach to life and business. In her free time, you can find her looking for a new adventure together with her two boys.