Factors to Consider Before Becoming a Franchisee

June 01, 2022

If you are considering starting a business, but starting one from scratch is not what you want, one of the options you should consider is buying a franchise. When you purchase a franchise, you become a franchisee and get into a joint venture with a franchisor. Franchising is an arrangement where a franchisor gives a franchisee the right to sell its (the franchisor’s) goods or services and use its (the franchisor’s) business name. In exchange for this, the franchisee pays the franchisor.

Franchising has several advantages. However, just like other business models, franchising has some disadvantages. Therefore, you should not be too quick to buy a franchise. Before purchasing a franchise, consider, among others, the following factors to ensure you make the right decision;

Demand

When purchasing a franchise, you must keep in mind that just because there is demand for a particular item or service in one place does not mean that will be the case in all other areas. You should not purchase a franchise license before finding out whether there is a market for the product or service a particular franchise offers where you want to set up your business. Additionally, you need to consider the potential for growth if you plan to open other branches in different locations with time.

Track Record

There are countless franchise options for people looking to become business owners in the franchise industry. However, you must remember that just because a business is offering franchising opportunities does not mean you have to take up that opportunity. It is best to consider companies that are successful in the franchise industry. For example, a company has proven itself successful in the franchise industry if it has proven sales success with its existing franchisees.

Competition

Before purchasing a franchise, you need to consider how much competition you will face. If you get into a joint venture with a franchisor with a well-known brand, you will likely have to deal with many competitors because of the already-established franchises. On the other hand, if the product or service is unique, you will not have to deal with a lot of competition. That said, the reality is that competition is an issue for most companies these days.

Training

Franchisors usually offer training to franchisees. This is one of the advantages of franchising. Before becoming a franchisee, consider how much entrepreneurial experience you have, and then choose a franchise that will offer you the training you need. If you lack entrepreneurial experience, it is best to consider a company that will provide substantial training.

Restrictions

Franchisors can impose limitations on how franchisees will operate their businesses. In other words, while a franchisee may be in control of their business, a franchisor is ultimately in control of the brand. Therefore, before you purchase a franchise, you must consider whether you are comfortable with the restrictions.

Contact a Business Attorney Serving Santa Clara County and Silicon Valley

If you want to start a business and think becoming a franchisee could be a good option, contact our business attorneys at SAC Attorneys LLP to get professional legal counsel.