4 Things You Should Know Before Buying a Franchise
Buying a franchise can be an exciting endeavor. Whether someone suggested the option to you or you’ve always dreamed of owning your own business, starting a franchise is a great way to work for yourself. Buying a franchise requires some expensive start-up costs; however, there are franchise financing options available. Here are four things to know before you dive head-first into buying a franchise.
1. Hard Work
The thought of running your own franchise may seem easy because the business model is already a proven winner. However, you should understand that just because you’re opening a franchise doesn’t mean your store will be successful. The customers don’t just automatically come and you need to do your part to keep the location running. You also must run the franchise according to the franchisor’s system or deviations can result in serious penalties. If you’re planning to open a franchise, be prepared to work hard.
2. Start-Up Costs
While starting a franchise is less risky than starting your own business, there are some start-up costs that must be considered. First, you’re going to need to pay the initial franchise fee. This is simply the cost for joining the business. Additional costs could include equipment, signage, real estate and a business license. Before you sign any contracts, be sure to consider the full start-up costs associated with opening a franchise.
3. Personal Finances
Many individuals overlook the fact that they should have their personal finances in order before attempting to buy a franchise. You should calculate your net worth and consult with a financial advisor. This advisor can help you reduce risk and help you make wise financial decisions. For example, most experts recommend not investing more than 15% of your own money on buying a franchise.
4. Financing Options
Once you’ve determined your net worth and checked with a financial advisor, it’s time to consider your financing options. Traditional bank loans can be difficult to acquire unless you have stellar credit and collateral. Fortunately, there are other franchise financing options available including SBA loans, franchisor financing, family and friends, home equity loans and retirement savings. With so many financing options available, it’s wise to work with a financial advisor to help you make the best decision for your personal circumstances.
Buying a franchise is a great way to start your own business while reducing risk. A franchise is also a good option for people who want the flexibility of working for themselves. While there can be expensive start-up costs, franchise financing is available to help people on a limited budget.