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Buying a franchise can be a great way to become a business owner without having to start a business from scratch. However, there are a few steps you need to follow as you pursue your dream of owning a business.
In this post, I’m going to provide you with a five step franchise buying checklist. This checklist serves as an outline of the whole process you will go through when buying a franchise.
Step 1: Find Franchise Opportunities That Interest You
The first step in buying a franchise (after you determine your investment budget) is to do a comprehensive online search, so you can look at all the available opportunities. And there are a lot of them!
One way to limit the number of franchises you investigate (to avoid overwhelm) is to search by category. That will help you a lot.
Next, once you’ve come up with some categories that interest you, you can start delving into individual franchise opportunities. (Note: While on Franchise Direct, you can narrow down your choices further by location and investment level once you've chosen an industry, if you so choose.)
Find a handful that have caught your eye and are within your budget. Then read the description of the franchise, and decide if you’d like to go onto the next step. What is that step?
Filling out the “Request Free Information” form.
And don’t be shy. Request information from a number of different franchise business opportunities. However, it's wise not to request information from too many franchises at once. If you're selecting more than 10, you may want to spend more time becoming clearer on what kind of franchise you want to own.
Important Note: Filling out request forms doesn’t bind you to anything more than agreeing to hear from someone from the company's franchise development team. Remember: You’re in the information-gathering stage.
Step 2: Start The Evaluation Process
Once you’ve narrowed down your list of potential franchises, it's time to evaluate each opportunity. This involves conducting a thorough analysis of the franchise's business model, support system, financials, and more.
And it all starts by having an introductory call with a member of the franchise development team. Your franchise representative will ask you a few questions about yourself, including your goals, the area where you propose setting up the business and more.
Of course you’ll have ample time to ask any questions you have about the brand, the actual business concept, and anything else that comes to mind as well.
If you like what you hear and show interest in moving to the next part of the process, your representative will ask you to fill out a franchise application (including your financial information) and send you more specific information about the franchise opportunity. After that, you’ll normally go through a week-by-week franchise discovery process.
That said, every franchisor has a specific way they present you with their information. Generally, it will include:
- Education about the brand
- Learning about your role as a franchisee
- Basic financial information
- Live or pre-recorded calls with franchisees talking about their experiences
- Initial FDD (Franchise Disclosure Document) discussion
- Financing options
- Timetable to open your location(s)
And a few other things, depending on the franchisor.
Step 3: Receive the Franchise Disclosure Document
Some franchisors send you their FDD early in the process. Others wait until you have a good understanding of their business. It depends. But first...
What Is The FDD?
The FDD is a legal document that provides detailed information about the franchise opportunity.
It includes information about the franchisor's history, it’s executives, upfront and ongoing fees, and obligations of both the franchisee and the franchisor (them).
Note: if you get to the point where you’re 90% sure you’re going to buy the franchise you’re investigating, you need to hire a franchise attorney to go over the document with you.
It should be noted that some FDD’s even contain information about average franchisee performance...earnings.
But even if the franchisor’s FDD contains specific earnings information, it’s still on you to contact franchisees to see if the numbers fall in line with what you’ve read. But don’t stop there.
Step 4: Contact Current Franchisees
In addition, the names, addresses, and phone numbers of every franchisee currently in the franchise system is included in the FDD. You need to call 10-15 of them to find out how satisfied they are with their businesses. Here are a few questions to ask them.
- Are they getting the support they need?
- Are the products/services they offer up to snuff?
- Are they making the money they thought they’d be making?
- Are they going to expand?
Finally, try to set up an in-person visit with a franchisee. Why? Because spending the day with a franchise owner is a terrific way to see the business you want to buy in action.
Step 5: Secure Financing
Once you have decided to move forward with a franchise opportunity, you’ll need to secure financing. Most franchisees go through an SBA-approved bank to get a small business loan.
That said, you’ll need to put some of your own money up, too. Don’t plan on putting nothing down.
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In conclusion, buying a franchise can be a great way to become a business owner.
However, it's important to go through the franchise buying process step-by-step. Doing so is a fantastic way to help you get to the goal of becoming a franchise owner confidently.
The Franchise King®, Joel Libava, is a top franchise expert. He’s written over 2,000 different articles on franchise ownership and personally consults with people who are looking to buy a profitable franchise. Go here to find out how The Franchise King® can help you become your own boss.