ARE YOU THINKING OF BUYING A FRANCHISE?
You have to make some real basic decisions.
Are you buying something that will create a better than average income as well as retain its capital value?
You don't want to pay $200,000 for a business for a $50,000 net profit each year unless you are confident that the business is still worth at least $200,000 and growing, and that the income will not suddenly drop after a couple of years. Otherwise you are simply throwing money away.
Make sure you are not paying for something that you can create yourself.
A hard working and energetic entrepeneur could probably establish his or her own gardening business unless the particular franchise came with a vehicle, substantial tools and a very secure client list.
How much of the purchase price is actual goodwill? Is that goodwill really worth it?
You have to stand back and ask yourself whether you can establish a like business yourself.
Of course, some franchises involve the patented intellectual property of someone else. That is a different matter. But always ask yourself first - "Am I getting value for money?"
When you buy a franchise you usually buy a business that is part of an existing chain of businesses.
For example, you might be buying into a small franchise involving a gardening business of a courier brand, or you may be looking at a far bigger business similar to K.F.C. or Mitre 10.
IF YOU THINK THINGS LOOK O.K. then . . . . . . . .
You, the "franchisee", will have the use of the franchisor’s source’s intellectual property – for example, a trademark or brand name together, with know-how and other ideas – and the chance to sell a reliable product or service.
You will have the support of a franchisor who will already have experienced success in the business and will have advertising resources that would be beyond a sole trader starting up an entirely new business.
In return for this you pay fees to the franchisor.
Typically a franchise has the following elements:
1. The franchisor grants a right or licence to the franchisee to carry on a particular business under or using a specific name that belongs to or is associated with the franchisor
2. The franchisee is usually required to operate the business in accordance with the marketing, business or technical plan that the franchisor specifies. In other words, the franchisor is entitled to exercise continuing c-
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