What First-time Franchisees Should Avoid in 2019

Franchise displayed in the monitor

Those who plan to be a franchise owner this year should know that while it reduces your exposure to risk compared to business from scratch, experts say that it can still be as risky without proper planning.

For instance, knowing the best kind of business in your target state will be an advantage. If you plan to buy a quick service restaurant (QSR) franchise, then you should consider Arizona, Maryland, and Nebraska as your destinations. Other places include Nevada, South Carolina, Tennessee, and Washington. Food franchises are more popular in these states than anywhere else in the U.S.

Top Mistakes to Avoid

Proper planning to buy a franchise includes having the right financing option for your business. It’s okay if you plan to use your savings to fund your new business, but the reality is that many depend on loans to realize their plan. Timing is essential when choosing among different options, or else you will be forced to take on a loan with unfavorable terms.

The type of franchise that you prefer will also be a factor for this. If it’s a relatively new brand, you should expect to pay a 30% upfront fee. Hence, having cash on hand will still be necessary in this case. Another thing to remember when planning a franchise venture involves the right estimation of overhead costs.

Low-cost Options

Franchise bubble chat

Some people often become distracted by the earning potential of business without accounting for the overhead expenses. This is one reason why many end up becoming disappointed. You can never be too prepared for unexpected costs that can arise as you run your business. Thus, think about a backup source for your capital.

A low-cost franchise can be a better alternative for risk-averse people. Food franchises might be popular, but competition in this sector has become too rigid that the brand you should stand out. A business model that only requires a small capital helps you avoid spending too much in the early stages of your business.

Proper Due Diligence

Legal counsel is a recommended resource before you sign along the dotted line. It might be an added expense, but it serves as an extra layer of assurance that you are choosing the right business. You could hire a franchise attorney to review the Franchise Disclosure Document, which might have complicated terms that are hard to understand for inexperienced people.

Another way to do proper due diligence involves reaching out to current franchisees of your preferred business. This is perhaps the best way to know if you picked the right franchise since it provides you with a closer and more personal perspective on the company. Also, be sure to have an exit strategy just in case things don’t go well before the end of your contract.

When choosing among a short list of franchises in your chosen niche, pick one that offers business transparency and a small initial investment. Since this is your first time to buy a franchise, it’s not advisable to spend a lot of money.