How to Invest in a Franchise

You have probably been hearing a lot about franchising lately. It is no wonder with how the industry continues to grow and attract smart, innovative investors.

If you are new to all this, but very interested, the first thing you should do is gather as much information as you can and have a heart to heart with yourself about what you really want to do.

Here is what you need to know about how to invest in a franchise:

Saving up to invest in a franchise

Initial startup costs and financial requirements for franchises can vary from $10,000 to a couple of million so it is important know exactly what your goal is first. Even if your saving is slow-going at first, chipping away at your goal will help keep you positive throughout the process.

Then use some of these tips for help you reach your goal quicker so you can invest in a franchise:

  • Switch to a bank with a better incentives. Higher interest rates on your savings account, no ATM or overdraft fees are all small ways to save more money. It might not seem like a lot at first, but you will be surprised by how much money can be frittered away with bank fees.
  • Set aside a certain amount from each paycheck. Make sticking to a budget easier for yourself, by having a certain amount of money from each paycheck put right into your savings account. We all know how easy it is to let coffees and lunches and dinners out fritter away our money before we have a chance to save anything. This way there are no excuses.
  • Check your accounts daily. With credit/debit cards, it can be hard to keep track of how much you are actually spending. If you are swiping that card several times a day, it is having a big impact on your bottom line. By checking it daily, you can see if you are going over budget as well as make sure there aren’t any unexpected charges on there.
  • Use cash as much as possible. While having a credit history is important, using cash for most of your daily purchases can go a long way to helping you save more money for your franchise. Each week, calculate how much spending money you have and take the cash out of the bank. You will not only save on ATM fees, you will not overspend because once the cash is gone you know you can’t spend anymore. Use envelopes to separate out food shopping money from gas money from I really need that cappuccino money.
  • Go cold turkey on any expensive habits. Whether it is that Starbucks run every morning or cigarettes or a case of beer every week, identify those expensive habits that are sabotaging your efforts to save. If you can, go cold turkey, but some addictions are harder to beat than others so you might want to gradually wean yourself off instead. The great thing is that not only will your wallet thank you, but so will your body. Think how much healthier you will feel as well.
  • Review your financial portfolio. If you have a decent financial portfolio already, take a close look at all your current investments and see if there are any ways to make more money. If you don’t already have a financial advisor guiding you, make sure you find one. Maximizing your assets is paramount.

How to get started as an investor

As you are getting your money together, you should also be doing your research on what investing in a franchise entails.

First, you need to understand your rights. Because franchising is governed by federal and state laws, you need to have a clear understanding of not only the legal requirements for owning a franchise, but also your rights as a franchisee. Franchise experts recommend that your hire an experienced franchise attorney to help you navigate all the legal paperwork.

There are two legal documents that you will need to sign: the Franchise Disclosure Document, which lays out information about the franchisor and the franchise system, and the franchise agreement.

Second, you need to have a heart to heart with yourself to make sure this is the right step for you. If you are a fan of making pro and con lists, then this is the perfect time to make one. Franchising is not for everyone so you should be clear on what the pros and cons of taking this particular route to becoming a business owner.

Some of the pros are that you are given an already established product or service to sell allowing you to capitalize on the franchisor’s brand name recognition and that you are offered a support structure and training to help you get your franchise unit up and running.

Typically the franchisor will help you with financing and constructing your store as well as with the grand opening and ongoing management support. As a beginner with little experience, being a franchise owner is like being a business owner with training wheels on. You have a support structure to help get a sure footing in the business.

One of the cons is that you do not have complete creative control. You have to adhere to all the regulations agreed upon in the franchisee agreement and you can’t just make whatever changes you want. Often times you will have to buy your supplies directly from the franchisor whether or not you think you can get a better deal somewhere else. Plus, there is the financial burden. Besides the initial franchise fee to get started, you will also have to pay royalties and advertising fees.

Finally, you have to pick which of the best money making franchises out there as the one you want to join. There are so many out there offering both products and services so you really need to have a heart to heart with yourself about what would be the best fit for you.

You also should interview a bunch of franchisors and their franchisees to find out more about their particular type of franchise.

Here are some important questions to investigate:

  • Are there certain products, services, brands that I am passionate about? Are there certain values that are important for potential franchisor to have?
  • Is there a viable market for this?
  • How much are initial start-up costs? Is this doable for me?
  • How long does it take to see a profit? Do I have enough money to keep everything afloat till then?
  • Does the franchisor offer adequate training and ongoing support? What do they offer for advertising and marketing?
  • Where will my franchise unit be located? Will I get rights to certain territory?
  • Are there any bankruptcies or legal problems in the franchisor’s present or past?
  • What are your financing options?

Chaps Pit Beef is growing its franchise program. If you love barbecue and a family-feel business, then call them today to learn if they might be a good fit for you.

Leave a Reply