Look carefully before you leap into a franchise business

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September 5, 2010

By David Compton The Meridian Star The Meridian Star Sun Sep 05, 2010, 08:30 AM CDT

MERIDIAN — Buying a franchise may seem like an easy way to get into business, but there are many things to consider before you make a commitment.

   A franchise agreement is basically a contract between you and an owner (franchisor) which allows you to use the owner’s trademark, trade name, or advertising symbol. In exchange for this right, you pay fees (often a portion of your business revenues) to the franchisor. As with any business relationship, specific obligations and benefits vary. Some franchisors offer a full range of services to help you get started, including training, site selection, marketing plans, and products. Others give you little more than the legal right to use their name or symbol, after which you are on your own.

   Initial and ongoing expenses vary widely among franchises, so determine all your costs before you invest. For example, some franchisors require franchisees to pay for licensing fees, building renovation, equipment purchases, operations manuals, real estate leases, and other start-up costs. Other franchisors may require you to pick up such costs as training, insurance, and advertising.

   Before signing a contract, make sure you understand any restrictions on competing with other franchisees or selling your business. Talk to other franchisees of the franchisor that you are considering. Do they get adequate training and ongoing support? If you hear extensive complaints, you should probably keep looking. Also, take a hard look at yourself. Are you willing to work long hours? Do you like working with people? Can you effectively sell your product or service?

   As always, it’s a good idea to seek professional advice before investing in a new business.

   David Compton is a Certified Public Accountant with offices in Meridian and Birmingham, Ala.

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