Trying to find cheap franchises to invest in is not as easy as doing a Google search. Just because a franchise is a lower cost does not mean it is a good investment. Entrepreneurs who are new to the franchise game may not know some key steps to take before making an investment. Learn whom you should talk to, what you should research and how you should go about finding cheap franchises to invest in.
First, you should talk to local franchisees in the industry you are considering. For example, if you are thinking about a food franchise, contact someone that owns a franchise in the next closest geographic area or major city. Offer to buy them lunch, and discuss in detail any questions you have. Ask questions about what’s required to get started, what their biggest challenge is, and how much training the franchise really offers. Also, ask how passionate they are about continuing the franchise now that they’ve been in business for awhile, and what they would do differently if they did it all over again. Some people may be turned off by such direct questions, but these are things you really need to know before investing in a low cost franchise.
It’s all about return on investment. You need to know how long you are able to float the business to turn a profit. Low-cost franchises generally take longer to realize a profit after the initial investment than higher priced franchises. That’s the tradeoff of low-cost franchises.
Know your financial situation. Do you have a family member or friend who is willing to offset the cost of operating until you achieve a return on your investment, or is willing to help buy into the business?
Do detailed research on the franchise’s Franchise Disclosure Document (FDD). The FDD is like a year-end financial performance report for a company. It will show earnings data for franchisees, including how many units they have invested in and how those are performing. Some private firms operate services to make franchise disclosure documents available to the public for a fee, but you should know that if you are in California, the California Department of Corporations makes the FDD available free of charge online.
If you still have detailed questions, you may want to consult a legal representative who specializes in franchising and distribution law. The American Bar Association maintains a list of qualified lawyers, which is a good starting place. Consulting counsel can help you with anything particular to your state and local franchising laws, and make sure you’ve considered any other legal requirements before you make a purchase. If you have questions about the limits of liability should anything happen while you are operating the franchise, it is also advisable to seek legal counsel.
Cheap franchises are not a quick way to automatically make money, but it is an excellent way to get started in the franchise industry. Knowing the key factors, like return on investment, and consulting existing franchisees, along with Franchise Disclosure Documents, will help you make an informed decision.