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Ask the Expert:
What Are the Risks Involved in Buying a Franchise?
MODERATED BY JOHN WALSH
If you've been considering buying a franchise business, you are probably weighing the pros and cons and looking for holes in the logic. As with any business venture there are risks involved with buying a franchise.
Q: Do women face unique risks starting a franchise business?
A: This is a pretty common question and the answer applies to minorities as well. Essentially, the answer is no. The playing field is pretty level today, whether you are a woman, African-American, or Asian. In fact, in a recent Entrepreneur.com survey 18% of franchisors reported that minorities are their primary franchise buyers.
Q: Is it possible that I could pay my franchise fees and not receive the support I need?
A: Certainly there are grifters out there who will take your money and move on to the next mark. As with any major investment, due diligence is critical. Research the franchisor, get referrals of existing and previous franchisees, and get everything in writing.
Q: What happens if I run out of money?
A: This is a risk but is easily prevented by doing your homework. Many franchisees plan only for the initial costs of starting a franchise business but neglect to budget for ongoing costs. As you plan your finances make sure to include operational costs for the first few years.
Q: Are there legal risks I need to know about?
A: Franchise documents are long, detailed, and often confusing. Remember that you are signing legally binding documents, so if you don't understand the details, you should find a lawyer who does.
Q: How tough is the competition going to be?
A: Every business has its competition. Don't assume anything when planning your franchise. Make sure you research both location and nearby competition and have a plan for your competitive strategy.
Q: What if I don't know anything about the product?
A: If you start a franchise and don't understand your own business, you run a big risk of failure. It's critical to understand your product as well as your core customer base. Do your homework before taking the leap--what you learn could make all the difference between profit and loss.
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