Things to consider before buying a franchise

Purchasing a franchise may seem like a no-brainer, as you are buying into an existing business that has already seen some success. However, even a well-established brand is not a risk-free endeavor. Buying a franchise carries a fair amount of risk. There are a number of things you should consider before you start plotting your acquisition of a franchise.

First of all, review your franchise agreement carefully. It holds the key to just about every facet of your franchise, including your obligations and terms. It is important to know what you are getting into so you can determine if the franchise is a good fit for you.

Consider additional costs that you may face after your franchise fee. You may need to cover rent, furnishings and remodeling, inventory and insurance. You should also be prepared to pay the necessary number of employees before your franchise gets off the ground.

Take some time to familiarize yourself with the market and your competition. Franchisors have an interest in selling as many franchises as possible, which could lead to oversaturation in a market. Make sure you know your competition and where you will stand.

In addition to knowing the market, you should be familiar with the franchise and its financial history. The franchisor should have financial disclosure documents, which can give you valuable insight into its revenue sources. Give these a good look before deciding whether to buy.

Finally, do not try to do it alone. Any business contract is a serious, binding agreement that can affect how you do business alone.

If you own a business and are considering expanding with a merger or acquisition, there may be serious consequences for your business. Consider working with an experienced business law attorney who can advise you of the best course of action for you and your business.

Source: Free Enterprise, “5 Legal Tips When Buying a Franchise,” Andrew Lu, Jan. 17, 2013

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