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Top 5 Mistakes People Make When Purchasing a Franchise

Purchasing a franchise is a big decision and just like any big decisions, it requires a lot of due diligence to ensure you are making the right selection. Check out the top 5 mistakes people make when purchasing a franchise; remember the more you know, the better off you will be.

1.) Assuming you will be successful because it is a franchise

Here is where the idea starts: finding the “right fit” for your individual goals, skills, and finances vs. enjoying the product or service as a consumer. Hey, I love burgers, that doesn’t mean I should or would open a burger franchise. Far too often people mistake a passion or a hobby as something that would be a good business for them. What they don’t realize is that the characteristics they are looking for in business often do not align with the characteristics required to be a successful franchisee.

If you don’t want to work weekends and evenings, deal with tons of minimum wage employees and constant turnover then owning a burger joint is probably not for you. It may actually be a great franchise just not for you.

2.) Not speaking with several other franchisees in their system

Speaking with franchisees that are already in business is invaluable. It’s important to get enough validations in order to get the prevailing attitude of the group. If the overwhelming majority are positive, that’s a good sign. On the other hand, if most people are struggling and say that they don’t feel the franchisor is giving enough support than you need to walk away. With this type of a decision, you want the odds stacked in your favor.

3.) Not carefully reviewing the Franchise Disclosure Document

A franchisor is required to send you their Franchise Disclosure Document (FDD) at least 14 days prior to you signing a franchise agreement. This is mandated by the FTC. The form and composition of the document are standard with any franchisor and must include information on a variety of topics. Don’t make the mistake of not reviewing it carefully.

4.) Not following the franchisor’s system

If you don’t like their business model then don’t buy the franchise. You should buy a franchise because they have a proven track record. You should buy because they have a strong business system with solid initial training and on-going support in all facets of the business

5.) Going in undercapitalized

Many people underestimate the total cost of going into a business. There are 3 main components that need to be considered:

  1. You have enough money to purchase the business

  2. You have enough working capital to support the business while you are building it and getting it to cash flow positive

  3. You have covered your living expenses for a proper amount of time.

Most people get the 1st one. However, the 2nd and 3rd is where some people fall short. You may start out slower than you would like but you still need to be able to continue marketing your business and covering your expenses, so you can continue to grow. Lastly, you have to make sure that all of your living expenses are covered for a sufficient amount of time. It’s going to take time to start generating an income with your business. You don’t want to have to close a growing business because it’s not able to support your monthly living. You should calculate that into your investment on the front-end to make sure that you are properly capitalized during this time.

Making sure you cover all of the basis before purchasing a franchise can be overwhelming. That is why franchise consultants exist! We are here to work with you, free of charge, to help you find the best franchise for you and your lifestyle.