10 Things to Know Before Buying a Franchise

BY DAVE LINIGER

In The Perfect 10, author & cofounder of RE/MAX Dave Liniger shares 50-plus years of business insights to help guide future generations of entrepreneurs as they pursue their professional dreams. Liniger revolutionized the real estate industry 45 years ago by creating the RE/MAX business model.

RE/MAX began franchising in 1975 accompanied by extensive global expansion e orts. During this time, Dave became a highly respected industry expert and was instrumental in government housing reform policies. Liniger's business magnum opus, a practical primer & love letter to young & future moguls, was written with the next half-century of innovative entrepreneurship in mind.

The Perfect 10 is chock full of top 10 lists & spans the tools of the trade from traditional business plan to Kaizen. Here are ten critical things Liniger says you must know about buying a franchise:

1. Franchise Model & System: Understand the franchise model & system o ered by the franchisor. Familiarize yourself with the franchise’s brand, products or services, and operational procedures, and what support is provided by the franchisor.

2. Franchise Fee & Initial Investment: Determine the franchise fee & initial investment required to purchase the franchise, including costs such as equipment, inventory, leasehold improvements & working capital. Understand the financial obligations & ensure that you have the necessary funds.

3. Franchise Agreement: Review the agreement carefully. This legally binding document outlines the terms & conditions of the franchise relationship, including rights, obligations, fees, royalties & termination clauses. Seek professional advice if needed to understand the agreement fully.

4. Franchisor’s Track Record: Research the franchisor’s track record & reputation. Evaluate their history, financial stability & litigation history, and the success rate of their franchisees. Speak with existing & former franchisees to gain insight into their experiences.

5. Training & Support: Assess the training & support provided by the franchisor. Understand the initial training program, ongoing support, marketing assistance & operational guidance. Strong franchisors o er comprehensive training & continuing support to help franchisees succeed.

6. Franchisee Responsibilities: Understand your responsibilities as a franchisee. This includes adhering to the franchisor’s operational standards, following established procedures, maintaining quality control, and complying with branding & marketing guidelines.

7. Territory & Competition: Investigate the territory rights & exclusivity o ered by the franchise. Understand the competition in the area & whether the franchise system has protected territories or market restrictions.

8. Franchisee-Franchisor Relationship: Understand the nature of the relationship between the franchisee & the franchisor. Franchisors typically maintain control over certain aspects of the business, such as branding, marketing & product/ service o erings. Make sure you’re comfortable with this level of control.

9. Profitability & Financial Projections: Obtain financial projections & understand the potential profitability of the franchise. Review the franchisor’s financial disclosures, including average sales figures & profitability of existing franchise units. Conduct independent research & analysis to validate the financial projections.

10. Exit Strategy: Consider your exit strategy. Understand the terms & conditions for selling the franchise in the future. Determine whether there are any restrictions or limitations on transferring ownership & if the franchisor o ers any assistance in the resale process. It’s crucial to conduct thorough due diligence, seek professional advice from attorneys & accountants experienced in franchising, and carefully evaluate all aspects of the franchise opportunity before making a final decision.