Franchise businesses comprise the largest share of start up businesses in United States. They are considered one of the safest businesses to buy/start because of existing brand establishment and strong corporate support.
Here are seven tips to help you select a franchise:
- Choose the right industry for you. Find a franchise that is aligned with your professional background and your location. This will make it easier to attain financing in the future.
- Select a key location. Locations with a drive through, plenty of parking space or within a shopping mall generate more foot traffic and sales.
- Look into the type of franchise agreements in place. Terms of the franchise agreement can range anywhere from 15 to 20 years. Research the royalties, the terms of the lease (length, location, escalation charges), and the payback time.
- Take advantage of economies of scale. In case you own the same kind of business, check to see if it makes sense to buy a franchise to increase produce and reduce cost per unit. However, if the acquisition pushes the revenue over $6 million, you will not longer qualify for SBA funding (a large source of franchisee acquisition financing).
- Make sure the franchise brand is stable and growing.
- Check to see if the brand is facing regulatory issues.
- Research the SBA lending rating for the franchise (A to D). The higher the category, the easier it is for the franchisee to access financing down.