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Thinking of having your own small business? Are you looking for some ideas and advice on how to begin a business? Maybe you’re looking for a franchise business model right now, well, purchasing one can be appealing. It’s evident that a franchise can be a wonderful direction to run your own business. You will surely earn the benefits of an already recognized brand with a popular service or product and having a positive reputation. In addition, you are given support when it comes to marketing, advertising, and operating manuals to efficiently run your business. 

Meanwhile, franchising a business can also provide you with lesser control of where, how, and how long you operate a business. Prior to buying a franchise, it’s essential to ask advice from an experienced lawyer, accountant, and business adviser. Don’t worry, we’re here to give you free tips about the things you need to know before buying a franchise. 

1. Try taking a personality test 

gray and blue Open signage

If military veterans plan to be franchisees, they’ll be pretty successful on it. There’s a reason why! We all know that they’re used to obeying rules and operating within a highly controlled system. If you think you’re the creative and spontaneous type who loves to cook without the recipes, explore with mood lighting, and paint the walls with unique colours, most likely you will not be suited for a franchisee. You must understand that you’re not the creator but instead an implementer. 

2. Learn about the franchise agreement 

The franchise agreement is very important to understand since it’s a contract you need to agree to for a period of time, usually five years. It will particularly cover where and how you will run your franchise, this is why you also need to consult with a professional to make sure you understand your rights and duties as one of their owners under every clause. For instance, you can if they provide business insurance

After the franchise agreement expires, the franchisor will not be required to renew your franchise, so the business and efforts you’ve established can go back to the franchisor. Also, make sure that you read the disclosure statement comprehensively. 

3. Assess your money and budget

yellow and black come in we're open sign

You need to look beyond the minimum requirements for purchasing a franchise, normally listed as the franchise fee and the price of equipment. Having a franchise up and developing can include heavy marketing expenses and the need to thrive on break-even books, or a time of net losses, prior to your business catches on. It doesn’t matter if 7-11 is your franchising business, even if it’s a well-known brand, customers must be able to find your new location. The Franchise Disclosure Document (FDD) must be provided by the franchisors to franchisees. Nearly all franchisors calculate three months’ worth of expenses but when you think of it, it’s smarter to think of your likely expenses for up to six months. It may actually take a year for the business to become profitable. You must have access to a capital that will cover business expenses within six months and personal living expenses for a year. 

4. Determine the financial risks of the business 

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Operating any type of business will always have its financial risks, particularly in connection to factors that are out of your control, including competition and the condition of the national, local, and global economy as well. 

There are several risks you need to know about franchising that may not be applicable to other kinds of business. Here are the things you need to know in particular:

You must have additional funds to cover unexpected expenses over the condition of your franchise contract or agreement. For instance, the franchisor has the power to change their systems or the appearance of their stores and you will normally be responsible for the costs of these modifications. 

The demand of consumers may not be similar to every geographical location. There may be a franchise that performs well and the other doesn’t. You must be aware that others can’t have the same success. 

You don’t have the choice of where you can purchase your stock. You can find more affordable products through another supplier, however, your franchisor may already have long-term contracts in place with current suppliers. 

Prior to committing to purchasing a franchise, you must know whether you’ll be able to recover your upfront expenses and generate a profit throughout the term of your franchise contract.

5. Perform a detailed cost/benefit examination

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It’s advised that you create the pro and con list of getting a franchise. Get a piece of paper and on one side, try to jot down the advantages you can have, such as proven market, established brand, training, staffing guidelines, recipes, store design. On the opposite side, write down the list of liabilities and costs, such as budget to pay for marketing the products or service, a fee of a franchise, ingredients needed, and the share of sales you are required to pay in royalties. 

Furthermore, whether you can hire a consultant to guide you in opening up your own store or restaurant, and rather of paying for royalties, marketing fees, mark-ups and marketing fees, save the money for yourself. 

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