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Investigate the system and the business you are buying
Becoming a franchisee means having to follow most of the franchisor’s rules for how the business has to be run, even if the franchisee doesn’t always agree that those rules are best for their business.
Franchisees also take on the financial risk of the business. This could mean having no income if the business is unprofitable, or even being unable to cover the costs of running the business.
Here are some helpful steps potential franchisees should take before signing anything. These will help make it easier to understand what franchisees are agreeing to when they buy a franchise. Included in this information is a handy list of questions to ask the franchisor and other franchisees.
Learn about franchising through our free online course
We have developed a free online course to help you decide if franchising is right for you.
The course ‘Is franchising for me?’ helps you understand how franchising is different from other business models and explains franchise agreements, due diligence, and leases.
Find out more about what you will learn by doing our free online course. You can complete the course at our own pace – it should take less than 90 minutes to complete the whole course.
We have some short videos that help explain some of the risks of franchising. These are available in English, Hindi, Chinese simplified and Chinese traditional.
Key steps in buying a franchise
There are some key steps you should always take to know the risks before signing a franchise agreement or paying money. This includes understanding key documents, talking to other franchisees and ex-franchisees, and seeking professional legal, accounting and business advice from franchising experts.
Some franchise systems require their franchisees to buy certain products from them or their specified supplier. These are known as supply restrictions. You may have no choice about where to buy some products.
Price vs. costs
The upfront price of a franchise may seem like a good deal, but there are also costs that you may have to pay to set up and run a franchise. It’s important to understand the total costs you may have to pay.