Buying a business? Is a franchise a wiser investment in the current economic environment?

We have been hearing many people talking about the relative safety of buying a Franchise, particularly in the current economic environment.  They are right to a degree.  For one thing, a good Franchise offers a tried and true brand, method of selling and product or service.  Further, your investment covers business training and on-going support, and often provides you with the ability to spread business costs with other franchisees.  These are all very positive factors particularly given these uncertain times.  

However, there are some elements of a franchise business that require special attention, and these should be weighed carefully when deciding whether to take the plunge. 

Five things to consider if you are thinking about buying a franchise:

1. Are the revenue targets reasonable especially in light of the current economic climate?

A franchise might seem like a safer bet than a start-up business in the current environment. However, carefully consider the revenue targets outlined in your franchise agreement and be particularly mindful of the implications of not meeting them. In some circumstances a failure to meet targets can result in a breach of your franchise agreement and leave you without a business!

2. Carefully consider previous financial documents in light of the current economic environment.

While prior financials are important, be aware that they will not always be a reliable source of information for ensuring ongoing viability given the current economic climate.

3. Check that your major competition is not part of the same franchise.

Depending on the nature of the business involved it may not survive another one operating in close proximity. Make sure you have a territorial right to exclusive use of a geographical area.

4. Does the Franchisor (the seller) own the Intellectual Property you are buying?

When you buy a franchise you buy access to the existing intellectual property of the business in question.  In most cases it is the intellectual property in the brand or operating systems that makes a franchise less risky than starting from scratch.  Therefore, make sure it is the Franchisor’s to sell. Consult a professional advisor to check IP ownership for you.

5. Get independent legal advice in relation to the franchise agreement.

Once the agreement is signed, the parameters, good or bad, are set for your business.  Your success therefore relies on a favourable and fair agreement. Have it checked out before embarking on your business venture.