Risks that you should not Overlook when Buying a Franchise

Does hearing that alarm early in the morning make you dream of being the boss and owning your business? Think of all the possibilities: setting your own hours, going to work when you wish, and ample vacation time. The dream of positive benefits is endless, but how can you do this? There are two possible routes to accomplish this goal. You can straight out start your own business, or you can buy a franchise here. You may be like most people and not have the available resources to secure the funding for starting a new business. If this is your situation, you may consider buying a franchise. On the surface, this seems like a safe alternative. When you scratch the surface, you discover that there are risks of buying a franchise. Let’s consider the risks that you should not overlook before making a final decision.

Exaggerated Expectations and Reality
Your expectations may not match reality. Being a franchisee does not exclude you from hard work and long hours. Actually, you work harder and put in longer hours. There are company guidelines and policies to follow. In actuality, it does not truly free you from a boss. The franchisor wants you to succeed and provides varying degrees of guidance, but you, the franchisee, have to adapt to a new company environment. Attitudes and expectations are risk factors.

 

Financial Foes
Nothing turns a dream into a nightmare quicker than financial difficulties. There are definitely financial risks that you need to consider before buying a franchise. Becoming a franchisee, is a major investment and a major risk. It may take a while for a franchise to become profitable. You need to take stock of your financial situation. Find out if you have sufficient resources, or if you need financing. Remember you need income to support yourself and your family. The last thing you want to do is to deplete all of your finances and have to declare bankruptcy. Sometimes all we see are the possibilities of financial gain with franchising and forget the financial risks of buying a franchise.

Not Properly Dealing with Documentation
Dealing with a multitude of documents is no surprise. Unless you are an accountant or a lawyer, seek the advice of professionals in these fields.

  • An accountant needs to analyze the profits and losses of the company. This may indicate financial patterns that you need to know. It gives you an idea of what to expect during a year of business, and a general idea of how long it takes to turn a profit.

 

  • Franchise attorneys know what to focus on in the Franchise Disclosure Document (FDD) and in the actual franchise contract. The FDD usually ranges from 150-200 pages. It provides information that the Federal Trade Commission feels that you need to know about the franchisor. There are particular restrictions and obligations that you need to abide by or you could face termination. A huge mistake is just skimming over the document and not understanding the implications.

If problems arise between the franchisee and the franchisor, the franchisor usually wins because the franchisor understands the FDD. Seeking the advice of professionals in advance helps to protect you.
Choosing to be a franchisee works great for some and not for others. Being aware of the risks of buying a franchise helps you to make better business decisions.