What to Know Before Buying a Franchise

Schuyler "Rocky" Reidel

Schuyler "Rocky" Reidel

Schuyler is the founder and managing attorney for Reidel Law Firm.

Reidellawfirm.com | What to Know Before Buying a Franchise

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Franchise ownership utilizes an established brand to build a track record.

One that involves more than gross sales or company culture.

Instead placing an emphasis on the legacy you’ll leave behind. For kids or grandkids to carry on your successful franchise.

But’s let deal with the present for now.

Continue reading and learn how to select opportunities like a veteran business owner.

How to Buy a Franchise, Step by Step

Before launching a new business, you need a methodical approach to enter the franchise industry.

Due diligence will take some time.

But the payout is more flexibility in your personal living expenses. In other words, a profitable business with recurring revenue.

Following the outlined order of steps will help you buy a franchise. And eventually file earnings claims that any entrepreneur would be happy to have.

Finding the Right Opportunity

Start by visiting the website of the International Franchise Association (IFA). Formed by William Rosenberg, the founder of Dunkin’ Donuts, it presents various franchise opportunities.

Additional help for your search:

  1. Resources
  2. Market research

Find out how technology is shaping your desired industry. Or the overall outlook for this consumer-driven business model.

You can also discover how many franchises are in a particular niche. Like food.

The competitive landscape should factor into your ultimate decision. If you own multiple businesses already, a higher density of franchise locations may not concern you.

But if this is your first time working in small business America, less competition could give you a better chance of success.

Popular Franchises Might Not Be the Best Fit

You may naturally lean towards a more well-known franchise opportunity.

But I want to make you aware of a shift. Away from large brands to local small business operations.

Selecting a lesser-known venture may help your balance sheet by tapping into this trend.

Use sources outside of the IFA website for additional confirmation on this topic:

  • Talking to other franchisees at exhibitions or conferences
  • Reaching out to a franchise lawyer

Next, I’ll guide your small business discovery.

Research Which Franchises You May Want to Own

During your school years, research was sometimes a dreaded subject.

I encourage you to fully embrace it now. Because it’ll be your best friend in business.

Giving your franchise location a better chance over peers that neglect it. Putting in the work now will save you headaches later.

Trust me.

Discovering the Right Business Model to Match Your Strengths

Expect to spend weeks on this all-important step. Buying a franchise is a large investment, so really take your time.

Areas to focus on:

  1. Business relationship between franchisees and the parent company
  2. Potential of the market you’re considering investing in

As mentioned earlier, this may rule out a global corporation you were set on joining. Brand recognition is lucrative, but not at the expense of your personal health and wellness.

Moving on, I’ll give you an idea of possible costs to purchase a franchise opportunity.

What Are the Initial Investment Costs and Franchise Fees?

When you sign a franchise agreement, an initial fee will be due. This ranges from $10,000 to over $100,000.

But there are ongoing costs as well.

Until you generate a profit, business expenses will be a regular part of assessing your overall situation. It’s good to be aware of that ahead of time.

View them as an investment, not as an expense. They are your entrance fee to a conceivably more comfortable future. For both you and your family.

Examples:

  • Initial franchise fee
  • Startup costs
  • Royalty fees
  • Marketing fees
  • Operating expenses

Franchise royalties will take away from business finances, so consider the amount. Before you add your signature to a franchise contract.

These fees are based off the monthly revenue produced at your location.

How Much Money Can I Make by Owning a Franchise?

After paying the initial fee, even a few thousand dollars may seem like an acceptable salary. Depending on your financing options, it’s possible.

However, I want to provide a realistic picture at this early stage.

While you build up to repeat business from the same customers, revenue will need to be reinvested. Meaning your take home pay won’t be significant.

I do have good news however should you persevere through those early years.

According to reported 2021 numbers from Glassdoor, franchise owners earn $93,000 annually.

Moving on, professional assistance can help cover you from a legal standpoint.

Review and Return Your Franchise Paperwork Very Carefully

Your franchisor will provide a franchise disclosure document (FDD).

What’s included:

  • History
  • Operations
  • Financial statements
  • Risks involved

Another key document is the franchise agreement. This is legally binding and as such, it should be looked over very closely.

Add someone who has negotiated favorable terms on behalf of both franchisors and franchisees to this review.

7 areas of your franchise contract:

  1. Timelines
  2. Fees
  3. Liquidated damages
  4. Confidentiality
  5. Non-competes
  6. Exit strategy
  7. Dispute resolutions

Reasons for a Franchise Business Review

Hire an expert to translate the “legalese” of the franchise disclosure document and other paperwork.

Benefits:

  1. Ability to negotiate the most favorable terms for you
  2. Help facilitate a better franchisor/franchisee relationship

Legal counsel is advisable because these contracts can be confusing and long.

Before I wrap up, there is one more consideration that I recommend.

Does Your Franchise Relationship Extend Beyond the Initial Training?

The current franchise owner should support you with ongoing training. And you will appreciate it as you navigate the uncharted waters.

Networking with their franchisees will help you glean valuable insights.

No amount of brand recognition is worth having to deal with an avoidable crisis. Especially if your franchisor is contractually obligated to assist.

Make sure you have a commitment from them to provide future training. Once again, trust me on this.

To conclude, I’d like to personally help you decide between various franchise opportunities.

Reidel Law Firm Safeguarding Your Franchise Business

As experts in franchise law, we can help you handle the legal aspects of any issues as a new franchisee. 

In addition, our legal team can advise you on ways to shore up gaps in the following areas:

  • Review personal guaranty and real estate control docs
  • Franchisee formation, guidance, and asset protection
  • Franchise operating compliance audit and coaching

By effectively managing risk and maximizing opportunities for businesses we answer the needs of our clients wherever and whenever they arise.

Call Reidel Law Firm today at (832) 510-3292 or fill out our contact form.  And see how our advice can turn you into a case study for franchisees.

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