Buying a franchise can be an exciting and lucrative journey.

But whether you’re a young entrepreneur or a seasoned professional looking to make an investment or mid-career pivot, the decision to buy a franchise requires careful consideration and extensive planning.

In this guide, the franchise team from PBMares explores key considerations to help you navigate the decision to buy a franchise.

For Aspiring Entrepreneurs

The allure of owning a franchise combines the independence of being your own boss with the backing of an already-established brand and a proven business model. However, planning and a healthy dose of self-reflection can make all the difference.

Step 1: Determine if franchising makes sense for your unique situation.

Begin by assessing your:

  • Skills and experience. While franchises often provide training, having a background relevant to the industry can be a significant advantage.
  • Financial preparedness. Ensure you have the necessary capital. Franchises come with various costs, including initial fees, equipment, inventory, and working capital. Be realistic about your financial situation and explore multiple funding options, such as loans or capital from outside investors or seller financing.

Step 2: Research franchise opportunities.

  • Consider your interests. When you select a franchise that aligns with your interests and passions, you’ll be more likely to stay motivated during challenging times.
  • Perform market research. Conduct thorough market research to assess demand for the franchise in your area. Analyze competitors, target audience, and location suitability.
  • Dig into the reputation of the franchise. Look for reviews, talk to current franchisees, and consider the brand’s history and growth trajectory.

Step 3: Perform due diligence.

  • Consider growth potential. Is there room for expansion? Can you envision yourself running this business for years to come?
  • Carefully review the Franchise Disclosure Document (FDD). The FDD provides detailed information about the business model, fees, and obligations. Thorough review of this document is crucial for understanding what you’re getting into.
  • Find out what degree of support you can expect from the franchisor. Support from the franchisor — in terms of training, marketing, operational assistance, etc. — can significantly ease your transition into the new business.

Step 4: Operate with a long-term vision.

  • Seek mentorship. Experienced franchisees or industry professionals can provide insights and advice as you navigate the inevitable challenges of starting a franchise. An attorney or CPA with franchise experience can be invaluable.
  • Consider exit strategy. Although you’re just getting started, understanding exit strategies — i.e., how you will sell or transfer ownership in the future — can help provide some perspective to the decision.

For Mid-Career Professionals

It’s not unusual for professionals approaching the mid-point of their careers to desire for a new challenge. Leveraging years of experience and financial stability, this group has a deep well of valuable skills and insights that can translate perfectly to a franchise venture.

In addition to all the considerations cited above for aspiring entrepreneurs, the following considerations are critical when weighing the pros and cons of a mid-career investment in a franchise.

Consideration #1: Your motivations

Reflect on your career goals and reasons for wanting to buy a franchise. Are you seeking a new challenge or financial stability? Perhaps you simply want a lifestyle change.

Understanding your motivations helps to ensure that your decision properly aligns with your personal and professional aspirations.

Consideration #2: Your risk tolerance

You’ve likely worked hard in your current career to build a nest egg. So, assessing your risk tolerance will be extremely important. Investing in a franchise involves financial risk, and understanding your comfort level with that risk is crucial.

Reach out to franchisees in nearby areas (outside of your potential territory, of course) and ask if you can spend some time observing a typical day. It’s been our experience that many business owners love to talk about their business and will be willing to accommodate you. If possible, visit a brand new franchise and one that’s been in business for several years to see the differences first-hand.

Too many new franchisees skip this step or only ask a few basic questions on an impersonal phone call.

Consideration #3: Your finances

  • Investment capital. Ensure you have sufficient capital for the initial investment and ongoing operational costs. Consider the potential return on investment and how it fits into your financial planning.
  • Financial health. Evaluate your financial health, including personal savings, debt levels, and retirement plans. A solid financial foundation can provide peace of mind during the transition.
  • Medical insurance. As a new self-employed business owner who may have been previously covered under an employer’s medical insurance or benefit plan, new considerations often arise in this area. A trusted advisor can help.

Consideration #4: Cash flow projections for the first couple of years

Work with a trusted financial advisor or CPA to develop cash flow projections as well as an initial investment budget for the franchise purchase, considering any renovation and equipment costs.
An experienced franchise accountant can help:

  • Review the FDD for financial disclosures that can be used to strengthen the cash flow projections.
  • Review any future debt service requirements. This way, you’ll be able to ensure that the projected cash flow will cover loan payments.
  • Consider estimated tax liability in your cash flow analysis.
  • Set aside funds on a monthly basis to pay various tax liabilities, e.g., income, sales, and payroll.

Consideration #5: Transition planning

Plan your career transition carefully. If you’re leaving a job, consider the timing, impact on your family, and how you’ll manage the transition period from a W-2 employee to a new self-employed business owner.

Building a support network as you make this transition can be tremendously helpful. Support from a trusted professional (preferably with franchise experience) willing to serve as a business advisor can be a game changer during the initial stages of your franchise journey.

Learn More

The decision to buy a franchise requires careful thought and planning. It’s a chance to be your own boss with the support of an established brand and an opportunity to leverage experience and invest in a new venture.

With many years of experience serving franchises in various industries, our dedicated franchise team can help you weigh the pros and cons of purchasing a franchise. Contact us today.