Many entrepreneurs who are looking to increase their net worth and wealth consider buying a franchise business. Franchise businesses are often successful because they don’t require starting from the ground up and can allow you to buy into a business model that is already proven to be successful. If you want to understand the basics of buying a franchise business, there are a few important tips to follow.
Start the Application Process
There are a lot of details and factors franchisors will review when you submit an application to buy a franchise. Expect the franchisors to look at your background, work history, and education. They’ll also ask where you plan to open the franchise and what you already know about their company to ensure you have an established plan that will increase your chances of success.
You’ll need to apply for financing, which will cover the different fees and expenses associated with franchising. Review all the documents before they’re submitted. Ask about specific verbiage you don’t understand to avoid signing anything that is unclear.
Obtain Support and Training
One of the main conveniences and benefits that comes with owning a franchise business is receiving support and training from the franchisor. They’ll equip you with the knowledge and skills to effectively run the business to ensure it succeeds. You can also ask for on-going training if there are areas you lack confidence.
You can expect to get training on the brand, payment technology, products or services, product placement, and sales tactics.
Prepare for the Costs
When you buy a franchise business, you’ll need to spend money before you start to earn it. There are a lot of upfront franchise fees to plan for, making it necessary to calculate the costs in advance. The cost depends on the type of franchise you own, which can range from $10,000 to $100,000.
There are several ways to pay for your franchise when you want to explore the different financing options that are available. You can consider leveraging your assets to self-fund. You can also partner with other investors, which will require other shareholders to also sign the agreement.
Traditional and SBA-backed loans are also available when you need additional funding. Fortunately, there are hundreds of franchises that are listed on the SBA’s registry, which can influence the type of franchise you choose to buy.
The upfront fees you pay to open a franchise are used to purchase the equipment, signs, and opening inventory. You’ll be expected to pay for enough inventory for the next two weeks. The funds will also be used for working capital and advertising fees.
If you buy a franchise from a larger franchisor that is more well-known, they may require you to pay more into a national fund for advertising. Although it may come at a higher cost, it can allow you to have more visibility and exposure.
Determine Your Projected Earnings
It’s also important to research how much money you can prepare to earn once you open your doors. Your profit is dependent upon your loan payments, taxes, and your required business investment. Approximately 16 percent of franchise owners earn more than $200,000 annually. After startup costs, the average income is $70,000 for franchise owners.
Understanding the costs and work involved with buying a franchise business can make it easier to decide if it’s the path you want to take when building your wealth. With enough research, you can select the best franchise business that works well for your schedule and is affordable for your budget with the upfront fees required.