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Buying a Franchise - What Questions You Should Ask

By Garrett Spence   |    April 24, 2017   |    11:04 AM

Although you may have numerous motivations for wanting to buy your own franchise, there is one key factor you should keep in mind that will determine the success of your venture: money. That means that when you are evaluating whether or not to buy a particular franchise, you should be focusing on questions that allow you to gauge capital needs. Secondly, you need to know the markets your franchise will operate in.  

Here are 4 questions you should ask to ensure that you make the right decision when considering a franchise.

1. What is the total investment that this franchise require?

You must ensure that you work this out before buying, or you may end with unwelcome news once it is too late. It is especially important to investigate thoroughly, as figures may not be clear in the disclosure documents or the information may consist of a wide array of possible answers. When researching which franchise to buy, make sure you get figures that are as accurate as possible, hire an accountant if need be. If you cannot get a clear-cut answer, estimate higher rather than lower.

2. After opening my franchise, what operating capital reserves will be required to cover losses until I break even?

It takes time to acquire a steady stream of business and to attract customers. You will not have stable revenue overnight, or even in a fortnight. Nevertheless, you will have an ongoing list of expenses, from staff salaries to overheads. Until you build a strong cash flow to cover your expenses, you will need cash reserves to cover your bills. You need to create a business plan that will allow you to evaluate this figure in a lucid manner.  If in doubt, hire an expert to help you.

3. Who are the competitors?

Although the franchisor might be able to provide some analysis on this subject, you should not rely on their figures, as you don't know what bias their figures may have. At the end of the day, you will need to do your own homework and find out what competition is like, thereby evaluating whether you think that your franchise can compete. You need to know your market well and think about what edge the franchise you are buying might have over other players in the same sector.

4. How long for my new franchise to break even?

This may be the most important question of all. Having an estimate of the time it will take for any franchise you are considering buying to reach breakeven will determine your chance of success. To get an idea of the time-frame, do your research: ask current and former franchisees how long it took them to become profitable. You may also want to hire an accountant to help you evaluate in a concrete manner what a business plan based on that information would look like. Once you have the answers, you’ll be able to make a fact-based, sensible decision.

Buying a franchise is not easy and takes a lot of time, money, organisation and research. Consider delegating certain time-consuming tasks to a virtual assistant to free up your schedule to focus on those tasks that matter.