Contrary to common belief, buying into a franchise, no matter how well known or successful the franchisor may be, is not a guarantee of a successful business. Although many people like the idea of entrepreneurship, owning and operating a franchise is not always easy. Before jumping into any business, it is best to understand the benefits and responsibilities you’ll face after purchase.
Although a franchise allows individuals to own their own business, it is still a business arrangement between you, the franchisee, and the company, or the franchisor. In order to ensure you are making the best possible business decision, the Federal Trade Commission offers information to help investors better understand franchise ownership, and choose the right franchise to invest in.
Before buying into a franchise, you may want to consider the cost involved with investment. Although a franchise may help you limit your risk by associating with an established company, your initial franchise fee and continuing royalty payments may be substantially more money than you want to relinquish. Depending on the business you are franchising, the initial fee may be hundreds of thousands of dollars, and you will likely still be responsible for your own rental property, equipment, licenses and insurance. The company in which you are franchising may also require you to pay a grand opening fee to cover promotion and advertising.
After the initial purchase, you will likely be required to pay royalty payments to the franchisor. Since these payments are simply for the ability to use the business name, you may still be required to pay them even if you are not earning much income. While these continuing expenses may deter individuals from investing in a franchise, there are many benefits to franchise ownership. Not only does your business gain instant name recognition, but the franchisor will likely offer training and support services to you and your staff.
Investing in a franchise is a major decision that should not be made until all the benefits and responsibilities associated with it have been considered. Working with an experienced attorney may help you better decide if franchise ownership is right for you.