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5 Things To Consider Before You Buy A Franchise
Staten Island business bank identifies helpful guidance
STATEN ISLAND, N.Y. -- Because investing in a franchise can be a major financial undertaking and a serious personal commitment, it also can entail certain risks.
Victory State Bank, Staten Island's commercial bank, suggests that guidelines by the Federal Trade Commission (FTC) might be useful when exploring whether a franchise is for you.
Understanding your abilities and goals, the FTC says, is a step toward deciding whether purchase a franchise.
In buying a franchise, you operate a business and sell goods or services with name recognition. You buy a format or system developed by the franchisor, and training and support. The risks are that franchisees must commit money and time, and must operate by the franchisor’s playbook.
Franchisors also have legal responsibilities, which are spelled out in the FTC's Franchise Rule. For example, they must give potential franchisees important information in a Franchise Disclosure Document (FDD) at least 14 days before a contract is signed or any payment is made.
In addition, some states require a franchisor to submit its FDD to state examiners for review before it can lawfully sell the franchise in the state. The Federal Trade Commission, the nation’s consumer protection agency, enforces the Franchise Rule.
If you’re thinking about investing in a franchise, the FTC advises weighing these five considerations:
Your financial situation
Buying into a franchise is a major investment. How much do you have to safely invest? Can you afford to lose your entire investment? Will you invest on your own or with partners? Do you need financing? Where will you get it?
Your need for income
Do you need a specific minimum annual income? It can take years for an investment in a franchise to become profitable; some franchises never make it. Do you have savings or another source of income to support yourself and your family until the franchise can?
Your abilities and goals
Consider your experience as a business owner or manager. What special skills do you have? Do you want a franchise that requires technical experience, or specialized training or education, like auto repair, home or office decorating, or tax preparation? What kind of work environment and routines do you prefer? Will you run the business yourself or hire a manager?
Is a multi-year commitment right for you? Franchise agreements generally are for several years, often 5 or 10. It can be difficult to end an agreement early. Once you commit to a franchise contract, you have to stay with it until the term ends, even if you’re not making as much money as you expected, or making a profit at all. How long do you want to stay in one location and engaged in one business?
Your comfort working under a franchisor’s control
As a franchisee, you are a business owner, but you don’t operate independently. You’re part of a network and you must follow rules that call for uniformity. A franchisor may limit your choices about sales area, training, suppliers, or the merchandise you sell. You may pay advertising fees and buy or lease from suppliers the franchisor chooses. If exercising creativity is important to you, think about whether you would be comfortable working with a franchisor’s controls.
If you decide you want to check out a specific franchise, the FTC recommends reading its "Buying a Franchise: A Consumer Guide" and ask a lawyer, accountant or experienced adviser to work with you.
About Victory State Bank
VSB Bancorp, Inc. (OTCQB: VSBN) is the one-bank holding company for Victory State Bank. As Staten Island, N.Y.’s only community-based commercial bank, Victory State Bank operates five full-service locations on the Island: The main office in the community of Great Kills, and branches in the communities of West Brighton, St. George, Dongan Hills and Rosebank. For additional information, Victory State Bank may be reached at 718-979-1100 or visited online at www.VictoryStateBank.com.