Question: I am thinking about either starting a business or buying a franchise. Can you help me understand if franchising is for me?
Answer: Franchising is not for everyone. Just like launching a business from scratch is also not for everyone. But with franchising, there are opportunities that accrue for an owner that are not available to a self-started enterprises. If you are considering investing in a franchise, here are some thoughts.
Reviewing the advantages and disadvantages of franchising puts the ultimate answer in perspective.
Advantages of franchising: Since you are buying into a successful brand, with a proven system, a franchise is more likely to succeed than a new business launch with a similar investment. A franchisee gets help with setup, as well as ongoing assistance operating the business. Once up and operating, a franchised business can be very profitable. Since most franchises are well-known brands, building awareness that drives new business and thus revenue is less arduous. Since there are numerous franchisees, you have the buying power of the group that is passed to each franchisee to lower overall costs of operating.
There are also disadvantages: Minimal flexibility — you are operating a system and are expected to operate the business the franchiser’s way. There are franchise fees throughout the life of the ownership. If it is a lesser-known franchise, then you are entering a highly competitive environment, just like launching a new business. There's no guarantee of business, just because it is a franchise. And, the initial cost of buying the franchise. You will need your own capital in the initial investment and possibly support for your own income while the franchise ramps up.
Finding, researching, and potentially purchasing a franchise is a process. Joel Libava, the Franchise King, offers a process to follow in a recent Small Business Administration blog.
Go slow. Buying a franchise, just like starting any business, is a big deal and requires major life changes. If you take the step to invest in a franchise, it will affect both you and your family in a big way. That is why it is critical to go slow and take the journey one step at a time. It is not a race. It won’t take a few weeks. The process takes time, so plan from the beginning that it won’t happen overnight.
Do a self-assessment. Take a long, hard look at your skill set. What are you good at? What skills don’t you possess? Are you a good people manager? Are you good with numbers? Do you excel at sales? Are you a rule follower — since you will have to do it the franchiser’s way. Another side of the self-assessment is determining what you want from the ownership of a franchise. Freedom? Financial independence? A better lifestyle? Equity in your future? Being engaged in a business/career that has a philosophy more closely aligned with that of your own? FranNet (frannet.com) can help you determine if have the appropriate skill set.
Talk with your family. Any small business requires 24/7 commitment. Even if your family is not directly involved in the franchise you are considering, you need to have a serious discussion of the impact on them of making this life-changing decision. Demands on your time and income stability are just two factors that you need to have joint understanding. Get their input and make sure they are totally on board with your decision.
Do a net-worth statement. Before you actually start contacting franchises or reaching out to FranNet (their help in the process is free to the potential franchisee), conduct a personal net-worth assessment. In advance of an investment from $25,000 to millions, know your own personal financial situation. Doing this evaluation will help you determine the amount of investment that is possible and reasonable. SCORE or your banker can help you with this analysis.
Find a franchise. Start with your interests. What are they? Food, auto service, residential/commercial cleaning? Do a web search and learn about franchises in your area of interest that are in your investment budget. Once you find franchises that fit your profile, aggressively interview them. Find out what has made them successful and what they expect of their franchisees. Attend seminars or participate in webinars to learn as much as you can during your research phase. And don’t forget to talk to existing franchisees and understand their experience to find out what they like, what they don’t and if they would do it again.
Ask good questions to understand the depth and breadth of the franchise. Libava suggests these questions: How long has the franchise company been in business? How long has the franchise salesperson been with the company? How many franchise units does the company currently have? What is their growth plan? What does the franchiser look for in a franchisee? What is the total investment? Is there territory available in your area? How long will it take to go through everything you need to know and make a decision? Does the franchiser offer financing? What is the failure rate? What does the future hold for this franchise concept
Understand financing. Most franchisees need financing. To understand financing alternatives check out this SBA website: sba.gov/funding-programs/loans.
Don’t forget to hire an attorney to review all the franchise documents. There is no reason to evaluate the terms and conditions yourself. They are complicated and the smallest nuance might be the one that trips you up in the future.
Visit franchisees, visit the franchiser headquarters, Review your strengths again and then decide. After you have done your due diligence, it is time to review your self-assessment again and lay it all out. When you take a systematic approach, the decision won’t be difficult.
Buying a franchise is like buying any other business. You need to do your research and investigate all aspects of the franchise investment. If your skill assessment, the franchise philosophy and approach are in alignment with your personal goals, it is an option that should be considered when evaluating becoming a small-business owner.
— Contributed by Marc L. Goldberg, certified mentor. Resource: US SBA Franchise King, guest blogger. If you are considering a franchise investment, contact SCORE Cape Cod and the Islands for an appointment with a franchise specialist. Contact capecod.score.org, firstname.lastname@example.org or 508-775-4884. We go where you are.