3 Things to Consider Before Choosing a Franchise Investment

Running a successful business is the dream of many, yet is attainable by few. The road to being your own boss and turning a profit can be incredibly complex, and different, for each individual. For many, the solution to attaining small business ownership lies with obtaining a franchise. Franchises are essentially privately run businesses that are owned by a corporate office.

For example, McDonald’s is a franchise operation, where individual owner-operators buy-in to the corporate product and business structure but are allowed to function as a small business. You will likely be paying a yearly royalty fee to the overseeing corporation, but the rest of the revenue is for you alone. Franchises will also cost you an initial startup fee that can be obtained in the form of a small business loan.

Many young investors view franchising as a quick way to obtain fast cash, but there are many other sides to the coin. Carefully considering, and weighing, the operating logistics and potential monetary value can be critically important to the success of your venture. Included here are a few things to consider before choosing a franchise to invest in.

Know Your System

When buying into a franchise, there are countless elements of the business to consider. Finding out the exact formula for what makes certain franchise locations successful can be the key to making it. A franchise that is fully functional, and essentially hands you the keys to a profitable operation, is ideal, but if you enter into your business agreement with no understanding of how to run payroll, product replacement, or marketing, you could put yourself in a sour situation.

Understand Your Future

They say those who forget the past are doomed to repeat it and the same could be said of franchisees. While some corporations have incredibly happy franchisees who remained with the company long-term, others found a hastily soured relationship that tainted their view of the company as a whole. The best way to know what your future holds in a franchise operation is by talking to the original franchisees and understanding their experience.

Estimate Earnings

As with any business venture, knowing exactly what your earnings and profitability will be is incredibly complex. Earning estimates from other locations can be dictated by the geographic location, socioeconomic environment, and even the product. However, you must be diligent about acquiring the most accurate earnings estimates before you invest.

A great way to go about this can be by carefully analyzing the procedures that make a certain location successful. Were there independent practices that worked aside from external factors? Is there an underserved area in your neck of the woods? Carefully analyze the average earnings, potential highs and lows, and assess your location before you begin.

Originally posted on May 27, 2016 @ 10:46 pm

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