What to Do Before You Buy a Franchise

Here are a few questions to consider before you buy a franchise.  For people who always wanted to own a business but do not know how to go about creating their own company or do not want to deal with the potential problems that accompany starting up any kind of business, buying a franchise might be a good idea for you!

How Do I Set Up a Franchise?

The first thing you want to do when you are looking to buy a franchise is to look into companies and businesses whose services or products interest you. Check out what kinds of things you will need to do specifically with that company in order to set up the franchise.

Next, you’ll want to determine if there is market for a franchise of the company you picked in your area. If not, you will either have to make the decision to move or choose another company’s franchise program. If there is no market, you are not going to make it very well for very long.

Before you start the legal process that deals directly with setting up a franchise (which can vary by state), you will want to establish a limited liability company (LLC). Creating an LLC first will help you avoid legal issues later as well as provide you with a way to protect your personal assets.

How Do I Get an LLC?

Though the exact rules, regulations, and stipulations will vary by state, you will need to file articles of organization with your state’s secretary of state. The form will ask for the names of the company as well as the members who compose the business and their contact information. You will also need to pay a filing fee that could be anywhere from $30-$200.

Why Set Up an LLC Before You Buy a Franchise?

Once you figure out which franchise you would like to buy, you should set up an LLC because then you will be prepared to convert your franchise over to your name and your legal responsibility as soon as you sign the franchise papers.

Also, in regard to taxation, an LLC works like this: the owners of an LLC report the profits and losses on their personal tax returns. An LLC is not a separately taxed entity. That being said, owners of an LLC are protected from being personally implicated in business claims and debts. That means that, if the business has debt or has been entered into a lawsuit, only the assets of the business are on the table, while your personal assets are completely protected.

What Else Should I Do Before Signing the Franchise Papers?

Though it is not required by any state, you will want to draft an operating business agreement that states all of the members of the company and their personal shares in it. Roles should also be specifically spelled out. This document can protect you in the event that your predetermined roles, responsibilities, and shares are challenged in court.

It would also be smart to hire a business lawyer or attorney to look through all the contracts you have set up, both in regard to the LLC and the franchise agreements that you have going. That way, you know exactly what you are getting yourself into, and there will not be any unpleasant surprises in the way of the contracts, which are legally binding. Trust me, paying the fee for the lawyer is completely worth it.

Good Luck! I Hope You Succeed

Beginning a franchise is exciting, and I hope that you are well on your way to figuring out what kind of franchise you want to purchase. Do not worry. Even in this economy, it is possible for a business to succeed!

By Kassandra Konecny


Though Kassandra Konecny has only begun writing professionally about six months ago, she has been writing creatively for years. Recently, she has worked to become an expert at writing blogs about franchises and business ventures. Some companies she writes for include N-Hance and Harris Research. Learn more about N-Hance franchise opportunities.


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