What to Consider When Buying a Franchise for Sale
Franchise business can be an exciting and safer way of owning a business, but before you sign a contract with a business franchise, you should consider things like cost, brand value and research to make sure this business model is for you.
Buying a franchise can be a suitable business model for many potential new business owners. With the support of the franchisor and an existing business structure, it can be said that buying a franchise for sale is a safer or less risky way of owning a business. Franchise businesses are thriving in all industries. Common franchises you might see in New Zealand are; cafe franchise, gym franchise, car care franchise, pizza franchise, landscaping franchise, and many more! The franchise system is a time-tested method for business operations.
But like any business decision, there are things to consider before you make the decision to enter into a franchise business.
Cost of Franchise
Franchises come in many different types and sizes; you can buy a franchise for as little as $20,000 or more than $1,000,000. However much you’re planning to spend you need to be aware of what is and what isn’t included before you sign the contract. Every franchise will have an initial franchise fee that covers the cost of the brand, system and sometimes training. Some franchise business include in their initial franchise fee launch promotions, full training and accommodation and income guarantees, but not all do this. It’s important to make clear what the franchise fee will cover to help you plan your budget when you start your franchise.
But what other costs should you expect? This varies on the type of franchise you’ve joined into for example, home-based businesses or services - Are there equipment or vehicles required and is this something you need to lease or purchase? Is there a site or location that you need to pay bond costs?
A good franchisor will give you the full details of the business before you sign the contract so you’re not faced with any unexpected costs. It’s best to have a business broker with years of experience in the franchising industry to guide you through and advise on what you need to prepare for.
Choosing The Franchise
With hundreds of franchise brands to choose from in New Zealand, it can be hard narrowing down the right business franchise that suits you. Doing research on the brand and getting a gauge from family and friends how they feel about the brand can be a great step in the right direction of choosing a business franchise. You should consider what presence the brand brings to the industry and if your values align with the brand as you’ll be closely tied to the inner workings of their business. You’ll be expected to meet many of the franchisor’s terms and standards and have the best interest of the franchise company.
From products, pricing, and signage, you will need to market these existing elements as if they were your own, so being committed to the brand is a huge thing.
Research & Due Diligence
Once you’ve found the right franchise that ticks all the boxes, the next step is research and doing your due diligence. Research the business as much as possible and take in as much of the advice and information from others in the industry as well as the business itself. Talk to existing franchisors of that exact business, a franchise business broker, all the way to the customers.
Do a full comprehensive review of a business and weigh up the common risks that the business faces. As a prospective franchisee, you need to closely examine the franchise documents and contract. It is extremely important for a franchisee to understand various matters including how the fee and payment structures work, what their obligations are under the franchise system and what restraint of trade and exit obligations they may be subject to if the franchise either expires or is sold or otherwise terminated.
So before buying into a franchise for sale, do thorough research and ask the necessary questions when it comes to fees and costs. You will need to consider whether franchising is the best business for you. Speak to other franchise holders and business brokers to make sure you understand all the terms and conditions of the franchise contract. Considering all these factors can minimise the risk and prepare you before you enter into a franchise.