What Makes a Franchise a Good or Bad Investment?

The dream job for many adults is to own and manage their own business.  And while most of us don’t necessarily have a plan for what that business might be, there are easier ways to get started than by waiting for a shiny, new idea to pop into your head.  You don’t need to reinvent the wheel here; all you need to do is look into buying a franchise.  But if you’re just starting down this path to self-employment, you may not have a very good idea of what to look for in a franchise.  How do you know which types of business are better to enter into?  Here are just a few things you may want to consider before you hop on the bandwagon of franchised business.

  1. Is it popular?  Pegging consumer tastes can be tricky, but there are a couple of ways to go about it.  One is to ask around.  Test the waters to see what people think of various franchises.  You may also want to look at how many locations they currently have.  Take McDonald’s, for example.  They operate in over 100 countries across the globe (with more than 30,000 restaurants).  That’s a popular corporation.  On the other hand, look at a franchise like Starbucks, which had to close 600 stores just a couple of years ago, despite their seeming popularity.  This is a good place to start, but there are other considerations to be made.
  2. Do you like it?  If you have no affinity for the company you’re joining then you’ve already got one foot down the road to failure.  You need to find a company that you not only like, but that you believe in if you want to turn your franchise into a success.
  3. Is there a future in it?  Despite the recession, there are businesses that continue to grow.  Technology and green industries, in particular, seem to be on the rise.  Of course, most of these don’t offer franchises.  Another option is food services, some of which receive continuing public support regardless of the state of the economy.  But no matter what industry you’re interested in, you need to think about where it’s going and how sustainable it is.
  4. How long has the company been franchised?  This may not necessarily affect your decision to buy into a franchise, but it’s something to consider simply because a company that has been franchising for a while has likely worked out most of the kinks in the process.  On the other hand, a newly franchised company may afford you more latitude in decisions regarding your location.  You need to decide what is more important to you.
  5. What is the cost?  This is a biggie.  Businesses that are popular are going to cost a lot more than those that are just beginning to branch out into franchising.  Those that have a long history of franchise may be more stable and offer a proven track record for earning, but they’re definitely going to cost you up front.
  6. What are the caveats?  Every small business franchise agreement is going to come with some addendums the buyer won’t like.  You may have to pay annual or monthly fees, turn over a portion of earnings, or meet certain standards of operation in order to hold the franchise.  If the restrictions or expenditures are too steep, you’ll need to seek another franchise to buy.

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