Buying a Home-Based Franchise
Pros, Cons, and Franchise Buying Checklist
Buying a home business franchise is the equivalent to buying the whole kit and caboodle. Not only do you purchase a business with a ready-made product or service and marketing plan, but also you also get brand name and recognition. When someone invests in a McDonald’s franchise, they aren’t buying a burger joint; they are buying the golden arches and all that goes with it. The same is true with a home-based franchise.
Advantages to Buying a Home-Based Franchise
- Turnkey business: Everything is already in place. You simply need to plug into the system and do what the manual tells you to do.
- Brand name and recognition: People trust brand names so you’ll have a market already open to buying from or hiring you.
- Ongoing support: The franchise wants you to be successful and will have people ready to answer your questions and provide guidance.
- Training: You won’t just get a kit; you’ll get full training on what it takes to run a successful franchise business based on the experiences of all its other successful franchisees.
- Financing: Many franchises will help you with payment or, if not, it can be easier to get a loan with a franchise than for a business made from scratch.
Disadvantages to Buying a Home-Based Franchise
- Expense: Home-based franchises cost $5,000 to $50,000 or more, and often include ongoing franchise fees.
- Restrictions on how you do business. You can’t put your own spin on how to run your franchise. While turnkey can be as easy as 1-2-3, it can also prevent you from using your own creativity and ideas.
- Paperwork: There is lots of it.
- Limited territory. While having a territory can be an advantage, if can also limit you.
How to Buy a Home-Based Franchise
Your first step in buying a franchise is in finding one you want to run. You’ll want to research your options carefully, but along with profit potential, consider businesses in areas you enjoy or knowledgeable about. There are hundreds if not thousands of home based business franchises. You can find a home-based franchise list at Entrepreneur.com. Other resources for home-based franchise opportunities include magazines and books.
Just like in buying an existing business, there are many things to research and find out before investing in a franchise. Use the franchise-buying checklist to investigate franchise opportunities.
Federal Trade Commission Franchise Disclosure Document
The Federal Trade Commission requires all franchisors to provide a copy of the FTC Franchise Disclosure Document (previously known as the Uniform Offering Circular) to potential franchisees at least 14 days prior to signing an agreement or paying money. This circular outlines twenty-three items required to help you make an informed decision. Make sure you get a copy of this document and read it carefully before spending your money on a franchise.
Consider checking with the Better Business Bureau and calling references as another part of your investigation and evaluation of the business. Finally, you may want to ask a lawyer to review the agreement as well. The Federal Trade Commission offers guidelines to buying a franchise you’ll want to check out.
Home-Based Franchise Buying Checklist:
- How long has the franchise been in business?
- What sort of reputation does it have?
- What are the complaints and how does the company respond?
- Are there any lawsuits against the franchise?
- How many franchise outlets are there?
- What is the management team’s background and experience?
- What is its financial situation?
- Do you like the products or services the franchise offers?
- Are the policies and rules ones that you can live with?
- How much does it cost to get started?
- What are ongoing fees if any?
- What are other franchisees in a similar territory earning?
- What do you get for your money?
- What is the projected income you can make and what is that based on?
- Have you contacted other franchisees about their experiences with the franchise?
- How many franchisees have failed and why?
- What kind of training and support is available?
- Are you obligated to get your supplies or engage in contracts with specific vendors?
- What marketing materials are available? Are you limited to using only these resources?
- Are there financing options?
- Are there territories? Can you expand in your area if you want to?
- What are the current trends for this business?
- What are your options for terminating your contract?