Franchises appeal to many new entrepreneurs because they offer a chance to own a business and come with a plan that has been proven to work. Unfortunately, some investors purchase a franchise without asking enough questions to determine if it is a good investment or not. While it’s true that franchises are often a safer investment than most other businesses, some are generally safer than others, and there are still a few things that every potential purchaser should ask before making their choice.
How Big is the Investment?
The cost to purchase a franchise can vary significantly depending on its location and the strength of the brand. Many of the pamphlets and documents that provide information on a franchise will list a range, and that isn’t enough information to justify a decision. Always ask how much it will cost you to purchase a franchise in your location before investing.
What is the Failure Rate?
Franchises are relatively safe investments, but there is no such thing as a guaranteed success in the world of business. Some new franchises will fail, and the odds of failure will depend on a variety of factors. That makes it hard to predict if an individual franchise will succeed in a specific area or not, but you can get a general idea of the odds by asking for a franchise’s failure rate. The higher the failure rate, the riskier the investment. If possible, try to get failure rates for individual areas so that you can find the rate for markets that closely resemble your own.
How Much Support is Available?
Franchises are appealing because they come with a support structure that can be useful for new business owners. Some franchises will offer more support than others, so be sure to ask what forms of training and assistance are available before you pick a franchise. This is less important for people who have experience in the industry, but even they can benefit from training that is focused on their franchise’s unique needs.
Who are the Competitors?
It is always important to check for local competition before opening a business, and franchises are no exception to that rule. The presence of competition is not inherently a problem, but it does complicate a franchise’s operations. Be sure to get an accurate picture of the situation before making your purchase.
How Many Franchises are There?
Large franchises offer greater brand recognition, which can be an advantage for a new business. It also increases the odds that the franchising company will remain in business to offer additional support, and a large number of active franchisees is a sign that the franchise has a good business model. Purchasing a smaller franchise can be a fine choice, but you need to be aware of it size before you make up your mind.