How to Invest in a Franchise: What to Know Before You Buy

The origin of franchising in the U.S. goes back to the mid-1800s when the Singer sewing machine company became the first franchisor. Since then, the industry has grown exponentially. Numbers in 2022 show that by year’s end there will be approximately 792,000 franchise establishments with 17,000 new locations– based on projections from the International Franchise Association’s Economic Outlook report.

If you are interested in learning how to invest in a franchise, you’ll be impressed by the numbers showing this can be a good venture – as long as you do your research and clearly understand the business model.

Your investment gets you entry into a ready-made business, rather than starting a business from scratch, as a sole proprietor with many unknowns. That’s not to say franchising is risk-free. It’s a business and there are no guarantees—however, the franchise business model has been tested in the market and proven to be successful. It provides the investor or franchisee with a guide to follow with profit potential and a good return on investment.

As an entrepreneur with dreams of business ownership, let’s look at how to invest in a franchise.

Tips to Know How to Invest in a Franchise

Becoming a franchise owner cuts out many steps you would otherwise have to do in a start-up business. The business plan is done, as is the branding and product development, and audience research. This shaves weeks and often months off the opening of your business. You have the advantage of opening your doors to a business that already has a customer base thanks to brand recognition.

You pay a franchise fee which entitles you to operate your franchise location with that proven model, the use of brand trademarks and logos, plus, you receive training and ongoing support from the franchisor.

You enjoy business ownership by buying into the brand. You must adhere to guidelines and restrictions in a multi-year agreement with the franchisor.

Breaking down your expenses, you will pay an initial franchise fee which experts say ranges from as low as $5,000 to as high as $50,000 or more, depending on the brand. You may also have lease fees or construction fees, inventory, equipment, and staff to pay for.

Most franchisors also collect royalties, based on a percentage of your weekly or monthly gross income. Typically, you must pay royalties for the right to use the franchisor’s name, you also may have to contribute to an advertising fund.

Once you start researching different franchises and determine what brands you’re interested in and that you can afford, you will dig a little deeper to ensure you know how to invest in a franchise that will provide the best chance at a good return. This includes attending a franchise’s discovery day where you are hosted by the franchise to get an overall picture of the brand and the support that you will be receiving.

For Your Consideration Before You Invest

Before you sign that franchise agreement, prospective franchisees are required to look at the franchise disclosure document or FDD which outlines the company’s finances and the business relationship between franchisee and franchisor. The Federal Trade Commission has made this a legal requirement. It’s important to know if the franchise has a good success rate and growth rate.

Next, consider your finances. Paying a franchise fee and possible construction costs will add up. The franchise will want to know if you can afford this venture. They will require a minimum liquid cash requirement and minimum net worth amount. You will need assets and good credit history to qualify for a loan.

Other points of consideration include knowing what your time commitment will be. Some franchises require you to be a hands-on owner, others are fine with you being a silent partner or simply utilizing the investment for your portfolio.

Before you invest, ask yourself if you are passionate about the business you are partnering with. Do you believe in the product and do you have the experience needed to pursue this business?

Your AAMCO Franchise Investment

AAMCO franchisees don’t need automotive repair experience, but we are looking for entrepreneurs who are driven for success. We have been a trusted automotive repair franchise for almost 60 years because we have earned a reputation as total car care specialists for our customers and a successful franchise.

We provide top-notch training for our franchisees along with ongoing support because we are dedicated to your success. We are transparent with our costs.  The price tag to open a new AAMCO Center can range from $223,600 to $330,500. This figure includes a $39,500 franchise fee. It also covers the common factors of an auto franchise cost such as equipment, training, and leasing a property. Opening an AAMCO franchise is a major investment. As a candidate, you should have a minimum of $65,000 in liquid capital and a net worth of at least $250,000 to get started.

If you are wondering how to invest in a franchise like AAMCO, request information to download your free franchise information report and learn more about us.

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