Buying a franchise can be an exciting path to becoming your own boss, but it comes with risks. Not every opportunity is what it appears to be, and first-time buyers often make mistakes that can cost them time, money, and even their entrepreneurial dreams. Joining us on today’s episode of The Small Business Show to discuss how to navigate these challenges is Joel Libava, better known as The Franchise King®, a franchise buying expert and author of Become a Franchise Owner! The Startup Guide to Lowering Risk, Making Money, and Owning What You Do.
Libava said the first step for anyone considering a franchise is ensuring they have sufficient capital not just to buy the business, but to operate it during the critical first year or two. He recommends a net worth of at least $500,000 to cover startup costs, living expenses, and marketing funds, noting that inflation and rising costs make thorough financial planning more important than ever.
Beyond finances, Libava encourages prospective owners to assess their personal strengths and skills from prior work experience. Many successful franchisees enter industries unrelated to their professional backgrounds, leveraging transferable skills such as organization or sales rather than industry-specific knowledge. Choosing the right franchise is about matching opportunities to one’s abilities and lifestyle goals, not simply following past experience.
Libava also warned of common red flags entrepreneurs should watch out for. Hesitation or delays in providing the Franchise Disclosure Document (FDD) can signal underlying problems. The FDD is a legal requirement containing 23 key items, including litigation history, executive backgrounds, and financial performance. Consulting a specialized franchise attorney to review the FDD is essential to avoid costly mistakes.
Further, Libava emphasized the critical importance of due diligence. Prospective franchisees, he advised, should personally evaluate profitability and operational support by speaking with current owners and visiting franchise locations. While multi-unit or multi-brand ownership offers potential for high returns, he suggested that first-time buyers should prioritize the successful operation of a single location before considering expansion.
He recommends resources, including the U.S. Small Business Administration website, the Federal Trade Commission’s franchise manual, and his own Franchise Attorney Directory to find qualified legal counsel. Libava noted that as baby boomers retire, franchising presents increasing opportunities for new investors ready to commit the time and capital necessary to succeed.
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