How to Purchase a Small Business Franchise

Written by Whitaker Stacey

The process of researching, choosing, and purchasing a small business franchise can be a long and complex one. The entire process can take months or even years. Once you’ve done your homework on potential franchisors, interviewed them, and chosen a franchise that’s right for you, there’s still quite a road ahead.

Step One

Review your initial business plan.

Any entrepreneur or business owner worth his salt has a business plan that outlines his personal and financial goals in both the short and the long term. A good strategy may be idealistic or realistic, but it reflects the business owner’s values, goals, and dreams in detail. If you don’t have one of these yet, you’re behind; make one now. It is an essential part of the process of researching and selecting a franchise that is right for you. Once you’ve decided upon a franchisor, go back and review your plan again. Before you involve anyone else in the process who might influence your decisions, you need to have a solid grasp on your own beliefs and aspirations. Hold firm to these, and you’ll be on your way to success, both personally and financially.

Step Two

Get a lawyer. In America, we would like to think of ourselves as capable of doing things on our own; this is especially true if you have an entrepreneurial spirit. When it comes to purchasing a small business franchise, however, you really do need a professional who has direct experience with the process. Once you have a lawyer, one of the first things you will need him or her to do is to read through the tome that is the Financial Disclosure Document (FDD), a long and drawn-out manuscript detailing every aspect of the business, its history, and business model. The document is extremely important, but it takes a special kind of know-how (and stamina) to read and understand the whole thing.

Step Three

Set up your business. Even though you are buying a franchise and not creating your own business from scratch, you will still need to set up your own business entity. Your lawyer—and accountant if you have one—will help you decide what kind of entity to establish (i.e. sole proprietorship, limited liability company (LLC), general partnership, etc.) A lawyer who specializes in small business franchises can offer insight into which type of entity is best for you—that is, which one will protect your financial assets best while providing you growth opportunities that are aligned with your personal goals.

Step Four

Negotiate and sign the contract.

The contract you sign with the franchisor will detail all of the important aspects of the agreement including royalty and advertising fees, when you will open your business, how much training and support the corporation will offer, your sales territory, quality assurance guidelines, production and wholesale costs, and much, much more. You will need to work with your lawyer to make sure you are getting the absolute best bang for your buck. Depending on the particular franchisor, some of the terms may be negotiable, but you’ll have a much better chance of getting the terms you want if you have a lawyer who is experienced in franchising. In addition, it is important to consider what will happen if your business is unable to make a profit or you fail to pay the royalty fees. How much time do you have before you have to call it quits? What, if any, support will the franchisor offer you during hard times to help get you back on your feet? Is there any way to get out of the contract if you begin to see warning signs of your franchise failing? These are all things that should be considered—and included in the contract—before you even think about signing it.

Conclusion

Perhaps the most important of these steps is to secure a reliable and experienced lawyer. After that, the rest will fall into place as your attorney helps walk you through the rest of the process. Of course, you will be a major player in the process as well. It is your interests and assets the lawyer is protecting, so don’t hesitate to speak up and voice a concern. Refer to step one of this process often to ensure that the business you are getting into is an accurate reflection of your own personal values and financial goals.