Many New Jersey residents want to have their own businesses and turn to franchising as the way to make that happen. There are many franchise opportunities out there to consider, but as with many things in life, some are much better choices than others. Every prospective business owner who is considering to become a franchisee needs to consider the following three questions before investing any money into a particular franchise opportunity.
What Is the Franchise’s Financial Position?
It is vital for a potential franchisee to know exactly what the company’s financial status is in order to determine whether it is worth investing into or not. Some of what a potential New Jersey franchisee seeks to know can be found in Item 21 of the Franchise Disclosure Document (FDD), a document that has 23 sections detailing a franchise’s fees and costs, turnover rates, legal fees, and much more.
However, beyond reading the FDD, it is important to ask the franchisor how the company has shown consistent sales growth over the last few years and how it plans to continue growing for the next few years. Another important aspect to find out before investing in a franchise opportunity is whether the majority of the company’s income comes from the sale of franchises or royalties. Also, be sure to find out how much capital the franchisor puts into training and marketing resources.
What Operating Capital Is Needed before Breaking Even?
Many potential franchisees are aware of the initial investment needed, but many New Jersey citizens forget to consider the operating capital needed to keep the new location afloat until it starts earning a profit. Even the most successful franchise is not going to earn a profit on day one at a new location. A new owner needs to find out the average amount of time needed for new franchisees to make a profit at their locations to make an informed decision about any franchise opportunity.
What Are the Obligatory Ongoing Fees?
Learn from the franchisor exactly what ongoing fees there are. What is the percentage of royalties that need to be paid each month? Is there a specific percentage each month for advertising? Are there any other fees each month, and if so, how much?
