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Factors that Should Be Considered When Buying a Franchise

Charles N. Internicola at the New York Franchise Law Blog discusses franchise opportunities involving the “potential re-opening of a previously failed franchise location”.  In the article Charles recommends that when considering these types of franchises that prospective franchisees:

  • Understand Why the "Closed Location" Originally Failed – When considering the purchase of a franchise location that previously failed you will want to do your research and figure out why the location failed.  Do research and find out who was at fault and why.  Did the franchise location you are considering not succeed because of its location‚ the franchisor‚ the cost of rent‚ the cost of food/supplies or was it the franchisee who was to blame for the franchise locations closure.  All of these questions should be answered before you decide to move forward with considering the purchase of a closed franchise location.
  • Your Investment Goes Far Beyond your Original Out of Pocket Expense – Often franchisors who are trying to offer a closed franchise location to a new prospective franchisee advertise the franchise location as being offered at a discounted start up cost.  Make sure that you fully evaluate the full situation and not just what the initial fee is.  Find out how much debt you will be incurring by purchasing the franchise that is being re-sold and how much your monthly charges will be.  If your monthly expenses are higher than the amount you will be generating in profits it is probably not worth buying the franchise location and you may want to consider continuing your search for the "right franchise" to purchase.
  • Don't Just Jump In – Make sure you perform due diligence when considering the purchase of any franchise or business.  You never want to jump into a situation that you are not fully aware of.  Contact other franchisees from the franchise system you are considering purchasing and ask them any questions you may have.  Then‚ once you have based your decision to purchase the franchise on your due diligence‚ contact Charles N. Internicola to review your Franchise Disclosure Document (FDD) and your Franchise Agreement. 

Following the steps listed Charles Internicola's article will allow you to make an informed decision when you are considering the purchase of a franchise that previously closed and can be the difference between your franchise location succeeding or failing.

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By Charles Internicola October 31, 2009

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