5 Big Mistakes Franchise Buyers Make

Mistakes Franchise Buyers Make

Source: smallbusiness.foxbusiness.com

There are tons of franchises to choose from in a wide range of industries. It’s a big decision and you want to make it the right decision. One of the biggest mistakes people make before buying a franchise is not doing enough due diligence, and then paying too much upfront for a franchise that has little resale value.

Here’s 5 big mistakes you want to avoid before buying a franchise:

1. Setting your standards too low. If you want to own a franchise, then you must want than just owning your own business. Don’t set yourself up for failure. You want to buy a business that will make money for you. Don’t be impulsive. Consider the business’s potential.

2. Misunderstanding the sales rep’s motivations. Many franchise representatives will try and convince you that their franchise is the hottest thing since sliced bread. Remember, they are motivated by commissions to sell franchise units. Be wise. Before making any commitments, hire an attorney that specializes in franchise law to review the agreement.

3. Not knowing the total cash requirements of the franchise. In some instances, the  total amount of cash needed to purchase the franchise is misleading. The franchise may advertise that you only need $35k to get started, but that doesn’t include the cash needed to support ongoing operations until the franchise achieves positive cash flow. Know your cash flow projections before you make any commitments, and get these numbers verified by an independent adviser or accountant.

4. Not knowing the true market value of the franchise. Do your homework and find out what the average franchise resale purchase price is in your state. Find our who buys up franchises when owners want out. Oftentimes, a strong regional franchise operator or the franchise headquarters buys distressed franchises at deep discounts.

Buying a franchise is a risk, yet many franchises are successful and profitable. Conduct a thorough due diligence. Talk to other franchisees and ask them their experience.

“I get too many letters from desperate franchise buyers who feel like they were snookered and say ‘I wish I had known better.’ Learn from these mistakes.”

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