How to buy a franchise (including a step by step guide)

By Indeed Editorial Team

Published 6 April 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Being a franchise owner can be a good way to start a new business. Buying a franchise involves licensing the business plan, products and services from another business, known as a franchisor and independently establishing the business in another location. Understanding how the process of buying a franchise works can increase your chances of success. In this article, we look at how to buy a franchise and the advantages and disadvantages of owning a franchise.

How to buy a franchise

Buying a franchise is a strategy you can follow to have your own business. When making a purchasing decision, there are some important factors to keep in mind, such as costs, legal agreements and business structures. Here are steps that show you how to buy a franchise:

1. Determine your aims

Before researching into specific franchises, it can be useful to decide what it is you want from the business. Spend some time reflecting on how owning a franchise aligns with the personal or professional goals you have. Doing this can help you confirm the type of involvement you would like in the business, such as working closely with processes within the company or only contributing financially. After you determine the time and energy you would like to invest in this venture, you can then find a franchise that aligns with these goals.

Besides reflecting on your personal goals, you can also write out aims for how much money you would like to make from the business. This might closely align with the risk you are willing to take. A franchise model that is just starting might have large payouts in the future, but you also take on more risk at the beginning. A franchise model that is well-known and reputable might come with lower risk and lower payouts.

Related: How to develop SMART goals

2. Conduct a personal SWOT analysis

Before going into a business venture, it can be useful to reflect on what strengths and weaknesses you might have, alongside the opportunities and threats. These can all come from your experiences and skills. Knowing this can help you look for franchises that align most with what you can offer. It can also support you in identifying any areas you might hire staff to help and finding a franchise network that can provide you with any additional assistance you might find useful.

Read more: How to create a personal SWOT analysis in 5 steps

3. Investigate how the franchise works

Before purchasing a franchise, it's important to research how the franchisor operates. This might involve researching the locations that are on offer, how big or small the franchises available are, how much competition is typically around in an area and any specific rules or legalities to follow. Doing this at the start can give you confidence that you are making the best decision for your requirements and goals. You might discover that you prefer how some types of franchises operate over others or that you want to live in a certain location. This can narrow down the choices available.

4. Identify different industries

Franchises cover many types of companies. The restaurant industry is a well-known option, but other proven franchises include accountancy, jewellery businesses, delivery and coffee companies. Competition in a franchise network can be high, so you might have a competitive advantage if you enter a less popular industry that allows you to use your strengths and skills effectively.

5. Research the franchisor

Alongside researching franchises, it's also important to research the franchisor. This can include finding out the history of the business, their goals, plans and how they work with the franchises. Your research can also encompass their financial health and bank accounts. Understanding their position in the market can increase your confidence that you are making a good choice of investing in this company. You might also look at what markets and audiences they target and if they align with your goals.

6. Know the finances

The costs of a franchise are both the initial investment you put in and how much you regularly pay the franchise. These payments finance the franchisors and can be the equivalent of your fee. This can mean that your investment is primarily at the beginning to set up the business to start making revenue.

In addition, it is important to spend time analysing your finances. Now is a good time to decide the level of investment you can offer. Starting a new franchise is similar to setting up a company from the very beginning, as revenue might initially be slow. Knowing your finances can help you prepare for a situation of having a lot of outgoing costs. You might also determine how much money you can borrow to support yourself at this point in the process.

7. Look at the help and assistance available

A benefit to having a franchise is the support and help you can receive from the proven business model of the franchisor. This can include support in setting up the franchise, such as legal documents, marketing and best practices for staff. Some franchisors also provide ongoing assistance on how to make your business more profitable and efficient. This can be particularly useful for a first-time or nervous entrepreneur.

Some franchisors can offer more support in certain areas, such as marketing or operational efficiency. It can be helpful to work with a franchise that offers you greater assistance in areas that you might find challenging. For example, if you find finances challenging, finding a franchise group that can support you with that might help you feel more confident about the success of your business.

8. Confirm the legalities

Part of your due diligence is confirming the legalities around the franchise. This can be any constraints on the setup or trading of the business. For example, some franchisors offer longer contracts than others. It's important to find out how long the franchise is available and if there is a possibility of signing up for another lease after the contract finishes. There may also be legalities around how much you can price products or services and which contractors you're able to work with. It's also important to establish any rules around selling the business when you close.

9. Narrow down your options

Now that you have set your goals and spent time researching the different types of franchises and their franchisors, it's time to narrow down the options available. It can be helpful to find franchises that align with your skills, experiences, budget, ideal locations and strengths. To narrow it down, you can look at the popularity and success of franchises in the locations you're looking at. Create a list of advantages and disadvantages for each franchise in your list and conduct further research to assess if they could work in reality.

10. Speak with franchise owners

Find franchise owners, ideally from your list, who are willing to speak to you about the realities of operating a franchise. It can be helpful to hear their experiences of the good and challenging aspects of being a franchise owner, particularly with the franchisor they work for. Learning about their experiences can help you decide if it's the right choice for you. It can also be useful to understand what business risks and opportunities there are, along with the support the franchisor offers and the culture it creates.

Read more: The benefits of networking and how to get the best results

Advantages to buying a franchise

These are some of the advantages of buying a franchise:

  • Proven business model: With a franchise, you have the advantage of working with a validated business model, which can increase your chances of success.

  • Training: The franchisor might train you in the systems and processes they use, which can help you start generating revenue quickly.

  • Brand advertising: Any brand marketing the franchisor does benefits you. This allows you to focus on other areas of the business.

Disadvantages to buying a franchise

These are some of the disadvantages of buying a franchise:

  • Large expense: It can be costly to buy a franchise, so you may invest a lot of money in the beginning. This can be a challenge if you are just starting.

  • Reduced profits: Because you are licensing someone else's business model, the contract sets out how much of your profits you share or any other regular payments there are.

  • Less flexibility: Although you are a business owner, the franchisor's procedures and processes are there for you to follow, so there's less opportunity to change parts of the business according to what you would like or what you think the market needs.

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