When you purchase a successful franchise, you're buying the right to sell a product or service using a system developed by the franchisor. You usually receive the right to use a trademarked name, training in profitably operating the business, advertising support, and other needed assistance. In exchange for these benefits, you'll generally need to pay an initial fee and a royalty based on a percentage of sales.
After
researching which franchises might be a good fit for you, ask each franchisor
to send you its Uniform Franchise Offering Circular. This federally required
document contains a wealth of important information, such as a sample franchise
agreement, start-up costs, annual fees, and other key elements of your
franchise investment. Take this information to your accountant and attorney for
their review. Also plan on talking to other franchisees to see what their
experiences have been. Ask them if they're profitable. How long did it take to
become profitable? Are they satisfied with the support they receive from the
franchisor?
Once
you've selected the best franchise for you, you'll probably need to obtain
financing. The bank will typically ask for a forecasted set of financial
statements detailing your expected income, expenses, and cash flow for the
first few years of business. These statements not only will help you qualify
for the loan, but also they'll give you a good feel for how profitable your new
venture might be.
