Mistakes to Avoid When Buying a Franchise Business

Buying a franchise business for sale can a good investment for the right buyer. There are some common mistakes that buyers of franchises make that can be avoided. This article examines some of the more common errors to stay keep top of mind.

Mistake #1. Not using a lawyer

It is highly recommended that you use the services of a lawyer when you are contemplating buying a franchise business. There are many documents to be reviewed such as leases or sub-leases and the franchise disclosure, which, by law, must be provided to a buyer in the Province of Ontario.

Mistake #2. Assuming that purchase financing will be there

It can be easier to finance a franchise business than a non-franchised one but this does not mean that financing is assured. Certainly there are many lending programs tailored to franchises but you should talk to a lender early in the process. You still need to be qualified and have sufficient cash recourses on hand to consummate a deal.

Mistake #3. Size does not always matter

There is a perception in the marketplace that the bigger the franchise organization, the better the chances of success. This is not always the case. Sometimes smaller organizations offer great value to an investor and a very compelling value proposition. Bigger is not always the best way to go.

Mistake #4. Success in a franchise is guaranteed

There is no guarantee of success in business - any business. When you buy a business, there is always the element of risk present. Going into a franchise group may mitigate some of the risks in running the business, but not all. The onus is still on you to properly operate your store, manage employees and generate revenue and profit. There is no guarantee.

Mistake #5. It will be an easier business to sell

Selling a business can be challenging. Some franchises that are popular, profitable, growing, managed properly and priced correctly may be easier to sell. Do not let this fool you though, if your franchised operation does not have all of these factors aligned then it certainly will be a challenging business to sell. Talk to a business broker to discuss the opportunities on the franchise re-sale market.

Mistake #6. Expecting too much

As a franchisee you would (typically) pay a royalty as well as a marketing or advertising fee to the franchisor. Because of the advertising fee that is paid, some owners feel that all of the marketing work is being done for them. This is not always the case. There may be significant local market opportunities for you to explore. Talk to the franchisor, learn what local marketing initiatives are available to you. Make sure that they fall in line with the terms of the franchise relationship.

There are many misconceptions about franchising in the marketplace. Before you make any decisions please work with your professional advisors. Also, talk to a business broker and visit different trade shows and events. The Canadian Franchise Association has great resources and events where you can learn more.