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How to lower your risk level when buying a franchise

On Behalf of | Aug 23, 2022 | Franchise Law

Business decisions involve at least some degree of risk, and buying a franchiseis among them. How much risk you face depends on certain variables, such as how established and successful the franchise system is already, the support provided by the franchisor, whether you will receive a protected territory and whether there is oversaturation in your area, among others. However, there are certain steps you might take to lower your degree of risk.

According to Franchise Wire, running a successful franchise involves a high degree of effort. There is no guarantee of success along the way, either, but by making the following moves, you might be able to reduce risks and thereby boost your chances of success. So, when looking to buy into a franchise, consider doing the following.

Find the right fit

Even if a franchise system is wildly successful, it pays for franchisees to have a genuine interest in the business or industry within which the brand operates. There is no shortage of franchises out there, so do your due diligence and find one that aligns with your education, skills, interests, financial situation, and professional abilities and licenses.

Once you decide on a particular franchise, be sure to take advantage of the existing tools and systems they have in place. Part of the benefit of buying into a franchise, rather than launching your own business, is that you do not need to reinvent the wheel.

Do your background research

Once you have several franchises you are considering buying , do some background research by making calls or scheduling meetings with existing and former franchisees. Consider asking them about their experiences running the business and working with the franchisor. The franchisor faces certain limitations from the Federal Trade Commission about what it may disclose, including the financial performance representations it can provide, but franchisees and former franchisees can provide actual information about their businesses and experiences. Thus, they can be solid sources of valuable information.

Review the FDD

Companies offering franchises must disclose material information about their operations. Performing due diligence and consulting experienced legal counsel will help you decide whether to invest in a franchise or choose one over another.