As you begin the process of researching potential franchises to buy, hundreds of questions are likely to be circulating in your head, many of them related to money. Here are several financial queries that you must absolutely ask before buying a franchise.
What’s the total investment I will be expected to make?
This is the question that really needs to be at the top of your list because it will immediately help you narrow down your list of franchises that are feasible options for you. Because you expect that your investment will eventually reap rewards, you may be tempted to justify expanding your budget to accommodate more expensive franchises than you had previously considered: don’t. Treat this experience like shopping for a house or a car. Set a maximum limit, and eliminate franchises that require you to make an investment that is beyond that amount.
How much cash is required?
It’s vital to know how much in liquid assets will be required by the franchisor early in the process because the answer can vary so significantly. In fact, the percentage of your investment that you must have in cash can range anywhere from 0% to 100%, depending on the franchise in question.
What do I receive for these costs?
You’re spending a significant amount of money to invest with the franchisor, so you deserve to know exactly what that money will yield you even before your company begins to earn revenue. For instance, does the franchise fee cover an on-site training period at the company headquarters? Are certain essential materials and equipment included in the start-up costs?
How are your royalty fees structured?
Royalty payments are something that almost every franchisee will have to deal with, but the types and structure can vary greatly from company to company. Some franchise companies levy an all-inclusive franchise royalty fee, while others split them up into different percentages to fund departments such as marketing, advertising, etc. Additionally, you will want to know how often each fee is assessed, and whether it is a fixed payment, percentage of sales, or another amount.
Are there any discounts or promotions available?
Many franchise companies, especially if they are part of larger networks, will offer specific discounts in order to attract potential franchisees. These may include discounts for qualified veterans, minorities, first-time franchisees, or those who are looking to open in a specific region.
Do you offer any assistance with financing?
Some franchisors may be able to work with preferred lenders to help you secure financing, while others will require you to navigate the process on your own.
When can I expect to reach my initial goals?
First, you need to decide on an initial goal. Whether it’s for the company to break even, reach a specific benchmark for growth, or hit a certain revenue target will depend on your specific type of business and situation. Then you need to ask the parent company how long it will likely take you to reach that goal, using specific examples provided by other units in the system.
How financially healthy is the parent company?
Many potential franchisees are concerned about the expected revenues and costs for their own location, but they forget to scrutinize the financial health of the corporate organization. Your franchisor is going to be your partner in this endeavor, so make sure they are financially stable enough to offer consistent support.
What are the lowest- and highest-performing franchises in operation?
Knowing this will help you get an idea of the best- and worst-case scenarios for owning this franchise. It will be even more informative if you can also see the low- and high-water financial results for the franchise units that closely resemble your target market.
If you’re considering a franchise investment or just have questions, feel free to contact one of our franchise specialists to learn more about the process and all the different franchise opportunities by completing our request form or calling 1-877-650-5551.