For those hoping to make a steady stream of income quickly with a business, franchises offer an incredible opportunity. Most small businesses take quite some time to begin turning profit. Even larger businesses with private investors and start-up capital struggle at first.
One of the best ways to avoid the long gap between opening your doors and turning a profit is to join a business that is already successful. Operating a franchise means opening a known and respected brand operation in your town. A franchise offers immediate recognition from potential customers. It also often typically includes directions for everything from product creation and customer service to employee wardrobe and the furnishing of the facility.
Franchises can be a great way to start a business and begin generating profit relatively quickly. However, you need to be very aware of the terms included in your franchise contract.
Liquid capital and deposit requirements often surprise would-be investors
You probably know it’s going to take tens, if not hundreds, of thousands of dollars to start a business. From hiring and training staff to securing facilities and supplies, there is massive investment in opening up a franchise business.
You may have capital on hand or even have financing for parts of your business deal. That may lead you to think that you are financially prepared for the realities of opening a franchise. However, the company that you work with may have strict and specific requirements that your current financial situation does not meet. Many franchise companies require that you have at least a quarter of a million dollars in liquid capital deposited in the bank.
Other companies will require substantial deposits in addition to the franchise fees that you have to pay. While you are checking out the liquid capital and reserves you must maintain, you should also look at those fees. Some franchises charge an annual fee. Others take a percentage of your sales. Some franchise operations have to pay both. Looking at the contract carefully could help you uncover surprise costs and charges you did not anticipate.
Determine if you are capable of fulfilling your contractual obligations
Franchises often have specific requirements regarding staff, employment practices and products or services provided. Any kind of deviation from the specific formula provided from the company could be a violation of your franchise contract. If, for example, you are unable to comply with some of their employment requirements due to the nature of the local community, you may find that a different company will be a better fit.
In other cases, if you hope to individualize or build on an existing brand, you may find that the parent company is unwilling to accommodate that desire. Certain business models allow for individual franchisees to take liberties with the company, and others require very strict adherence.
Discussing your desires and goals with an experienced business attorney is always smart before taking steps to secure franchise rights. From the process of reviewing contracts to determining if a business investment is in your best interest, a lawyer can help with making informed decisions about how you invest your money.