Important Tips and Things to Know Before Buying a Franchise Business  

Women are taking control of their lives and finances like never before, at least in part to the number of women starting their own businesses. According to the National Women’s Business Council, from 2007 to 2012—the most recent data available–the number of women-owned businesses increased by 26.8%.

Franchises are enticing to women with an entrepreneurial bend because they offer proven business models and support in areas such as marketing and materials sourcing that most start-ups don’t have. Some franchises even offer minorities discounts on initial franchise fees and financing fee discounts, making them an even better deal for minority women with money to invest. Franchises can be a great fit for women because they are in business for themselves, not by themselves.

What makes women a great match for many franchises? Women tend to be great communicators, financially frugal, organized, detail-oriented and enjoy being part of something bigger. Consequently, more franchisors are marketing to women. But before you sign on the line and invest your hard-earned savings into a franchise venture, here are a few facts to know.

An Introduction to a Franchise Business and How it Works

What Will a Franchise Cost?
Expect an initial franchise fee ranging from several thousand to several hundred thousand dollars, depending on the franchise. You will have costs for operating licenses, building, equipment, inventory and insurances. Most franchisees pay some sort of royalties based on their weekly or monthly gross income, in addition to the royalty fees paid for use of the franchise name. A franchisee may also have to pay toward national advertising of the brand that may not directly benefit their location.

Who Controls Your Business?
You do. But so does the franchisor. The franchisor has built a business and a reputation. They want to expand and reach a wider audience with your help, but they also want to maintain some controls over the business they built. To protect their brand, a franchise must maintain uniformity and frequently do so in the following ways:

• Site – The location of your business might need to be approved your site, and the location they select might not be your top choice. In addition to their desire to carefully select an area that has the greatest potential, they also must consider its proximity to other franchisees. Some franchisees have a restricted or protected sales territory, and that could mean that you cannot sell closest to your home because someone already has that geographic area.
• Appearance – Franchisors routinely require specific appearance to present a uniform image for the chain. This includes interior and exterior design, fixtures and signage. If the franchise rebrands their image, you might be responsible for upgrades to décor, signage and marketing materials to comply. You may also be responsible for purchasing uniforms, marketing materials and equipment through approved vendors.
• Contractual Agreements – Your franchise “rights” will last a specified number of years. The franchisor gets to decide based on your performance whether or not to renew your franchise. If you fail to meet your obligations to the franchisor, such as a failure to pay royalties or because you failed to comply with requirements to upgrade the facility, the franchisor may even terminate your franchise.

How Do You Fit Into the Business Model and Make it Your Own?

What Are Your Goals?
Finding the right franchise opportunity has a lot to do with understanding your goals. Are you interested in or committed to a particular industry? How many hours are you able to or desire to work? A 24-hour on-call disaster clean-up company isn’t ideal if you are the person who cannot function without eight hours of quality sleep. What are your annual income needs? How much money can you afford to lose? After all, not all businesses succeed, even with a solid foundation.

What is Your Financial Situation?
Do you have enough money to invest to both purchase the franchise and keep your business afloat during the first couple of critical years? What will you do if your business takes longer than anticipated to turn a profit? If you will require financing, does your credit score say you’re a good risk? Have you considered asking partners to join you in this endeavor, and if so, what will be your partnership arrangement?

Should You Invest in Your Passion?
Women know the importance of finding their passion and doing what they love. A franchise can provide an opportunity to invest in your passion. Love fitness? You could choose an option like Pure Barre or Snap Fitness. Do you eat healthily without prompting? Edible Arrangements or Planet Smoothie might be an excellent fit. Techie women might thrive in a tech oriented franchise such as uBreakiFix or Mathnasium.

Where Can You Find Assistance Before Purchasing a Franchise?

Should You Hire a Broker or Consultant?
If you want assistance finding a franchisor or choosing one that will be a good fit for your strengths and interests, a franchise broker or consultant could help. The International Franchise Association is one place to begin your search. Understand that just about anyone can bill themselves a “franchise consultant,” so be on the lookout for the goods to back up that title. What is their reputation in the industry? Can they provide references to franchisees who have attained successful franchises with their assistance? A franchise consultant will normally have a list of qualified franchisors with whom they have a relationship and will recommend the best fits based on your interests and budget. The consultant will usually be compensated in one of two ways: they receive a flat fee for the service or they receive a commission based on the price of the franchise.

Obtain Legal Advice?
It’s always a good idea to have someone familiar with legal lingo, and specifically contracts, advise you when purchasing a business. A franchise is no different. It will be worth the money to fully understand all of your obligations—and theirs–under the contract. Additionally, according to the rules of the Federal Trade Commission (FTC) you are entitled to a Franchise Disclosure Document, and “you must receive the document at least 14 days before you are asked to sign any contract or pay any money to the franchisor or an affiliate of the franchisor.” Exercise due diligence and understand your rights.

What’s Your Earning Potential?

Every franchisor would like you to believe they have the best opportunity available, but ascertaining the financial potential of a franchise can be tricky. Franchisors cannot report potential profitability unless they also provide a reasonable basis of how they arrived at that figure and report it on their Franchise Disclosure Document. Beware of gross sales data. A franchisee with high gross sales might be losing money because of large overhead. A franchise outlet’s profitability will also vary dramatically by geographic area. Don’t assume that because yours will be the only doughnut franchise in your town that your town has the potential to ensure its profitability. Understand that a franchisee with 25 years of business expertise might outperform other franchisees, and their earnings might not be typical. Will your background in elementary education be adequate to build your business to that performance level? Or will you need to hire advisors, at least for the first couple of years?

Before you settle on your future franchise, understand that a franchise is like a cake recipe. You can assemble the right ingredients, obtain all the right tools, and have reasonably good baking skills, but the climate where you live might make your cake fall flat unless you’re prepared to adjust for things like humidity and elevation. With some patience and determination, you can build on an already-solid foundation.

If you’re one of the exceptional entrepreneurs who has built a successful business from scratch that you’d like to expand, ask yourself, “Is my business model duplicable?” Yes? Then you might have an excellent franchise business model that can take your business to the next level while helping other people fulfill their dreams of owning a business.