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Every successful entrepreneur will tell you that owning a profitable venture doesn’t happen overnight. It requires hard work and grit to make things work and develop a winning business strategy that sells. This principle is especially important for anyone who is thinking of buying a sports franchise.
Franchising is one of the ways established companies can introduce additional revenue streams. Enterprise owners are attracted to this business concept because they don’t have to worry about building a brand and attracting customers.
But like any other enterprise, sports franchising has risks and downsides. As a prospective investor, you must research essential information about this business concept to know what you’re up for. Let’s take a closer look at what every investor should know before buying into more established enterprises.
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1. Learn the Basics of Sports Franchising
Before looking at franchises you can buy, it’s paramount that you prepare by assessing yourself. Part of the evaluation should include learning the basics of sports franchising.
Suppose you can’t access specific information about your chosen brand. In that case, access online and offline sources available to the public. Government-run agencies and private business websites should have guides, tips, and basic information about franchising. These sources can help you make an informed decision.
2. Your Strengths and Passion Foster Business Success
More importantly, ensure you’re passionate about the brand, product, or service you’re buying into. Your passion will give rise to greater success in your chosen entrepreneurial field.
For example, if you’re obsessed with maintaining a healthy lifestyle and sharing this with other people, consider franchising a sports gym. Provide nutrition services or distribute health supplements if you’re a qualified nutritionist-dietician.
3. Franchisors Have Different Requirements
Franchisor requirements vary by industry and the nature of a business. Some large companies may have more stringent requirements. In these cases, not all interested franchisees can start operating a business under their name.
Typically, brand owners look at a franchisee’s legal and financial capacities. These criteria include citizenship, credit scores, financial capacities such as other income sources and personal worth, and business experience, among other things.
4. You Can Examine the Franchisor’s Performance
Similarly, you can learn more about the franchisor by studying its market and how well it hits its targets. Gathering information about this can be tricky, but it is possible.
For instance, all franchises in the United States must file a Finance Disclosure Document (FDD) containing essential business information. Such a document is provided to interested and qualified franchisees. It contains useful insights such as management team profiles, lawsuits, and bankruptcy. It also includes information about the conduct of business and the relationship between the franchisee and the franchisor.
5. It’s a Must to Study the Franchise Terms
Once you’ve gained access to the FDD, consider hiring professionals such as an attorney specializing in franchising law, which outlines how franchisors should operate based on state regulations. You can also hire an accountant to know how sports franchising can affect your other business interests or if the franchisor’s financial report is in order.
The FDD is a highly useful document for franchisees because it stipulates all the fees and start-up or investment costs. A potential investor should study this document alongside the franchise agreement to learn everything they must know about the franchisor.
6. Determine the Total Costs of the Sports Franchise
Several costs are associated with sports franchising, with the most popular being franchise fees. You will pay this business cost once. It is just one of the few costs franchisees must pay.
According to the Small Business Administration, franchise costs range from USD$20,000 to USD$50,000 and up to USD$100,000 for a master franchise, covering a larger scope. But franchisors earn from royalties, marketing fees, and other costs representing a certain percentage of the total revenues.
Monthly commissions and franchise fees aside, a potential investor will need to spend start-up capital for supplies and equipment and a lease for the business’s physical location. The SBA estimates that companies paid roughly USD$175,000 to open a franchise business in 2017.
7. List the Support You Can Get
One of the major draws of franchise businesses is that the franchisor provides technical support in all aspects of your business. Besides marketing assistance and boosting sales, they can organize training for business owners, staff, and managers. With franchising, you’ll also be able to connect with other successful franchisees from whom you can get valuable insights.
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Some franchisors also take care of the business’s research and development activities. In such cases, you’ll be able to access improved products and services that address the market more effectively.
However, note that successful business systems don’t happen overnight. Even if you can access all the support you need, your business success will still depend on your efforts. Spend time and energy to improve while being mindful of the agreement terms.
8. Compare the Pros and Cons of the Sports Franchise
Before investing in a sports franchise, it’s crucial to list the benefits and risks you have learned about from the information you’ve gathered. Be as objective as possible when performing this exercise.
For instance, you may point out the high upfront costs as a downside but realize that the business also has high net revenue potential as a benefit. Or, you might be obliged to get raw materials from an accredited supplier, which may not be the most cost-effective option. Keeping this list will help you arrive at an informed decision.
You must consider several factors before investing in sports franchising. You need to gather as much information as possible, considering franchisors are always protective of their brand and want to remain in total control of it. However, you have the final say regarding the daily operations.
As such, it would help to hire professionals to understand the risks and terms better and position your business for optimal performance and growth.
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