So, you want to start a business and you’ve decided a franchise is for you. There are a number of advantages to selecting a franchise. Here are several of them.
- It is a proven business model.
- You have a pre-defined target market.
- You have brand recognition because the product or service is already known.
- The business methods and systems are already in place, all you have to do is follow them.
- Training is provided for you and your management team.
- Operations manual that details all of the job descriptions, processes, procedures, rules and requirements for operating the business is provided.
- You receive on-the-job training at a working franchise.
- The franchise team helps you open the business and gets you started on the right foot.
- Store layout design help.
- Assistance selecting a suitable location and negotiating the lease.
- Equipment lists and purchase sources are already identified and prices negotiated.
- Vendors identified (the collective buying power of the franchisor can allow for bulk buys with savings passed to franchisees).
- Assistance negotiating leases for equipment.
- Marketingplan is already developed; help with advertising materials or advertising provided by the franchise.
- SBA lenders favor franchises (if they are on the SBA approved list).
All of this is great, but how do you go about selecting a franchise? Do you pick one you like to patronize? Do you pick the one that seems to be “on fire” right now?
Our first piece of advice is to review all of your opportunities in light of your goals and personal preferences.
How much money do you want to make?
How much participation do you want to have in the business?
Do you want a business you can hand off to your children, or do you want to grow it large enough to sell and have a retirement nest egg?
A franchise is not the right choice for everyone, which is why a large percentage of franchisees sell their franchise before the end of the agreement.
Franchises are a long term relationship (usually 10 years). You must take great care when selecting one.
If you think a franchise may be for you and plan to investigate further, here are some things you might want to consider.
- If the franchise is a family-owned or closely held business and the franchisor has placed relatives in key roles, be sure they are qualified for their positions and have the experience to keep the franchise successful.
- You will likely have a designated territory, but only in regards to other franchisees. This may mean the franchisor can open a company store in your territory whenever they choose. Make sure you understand the rules regarding territories and company owned stores.
- Frequently you are required to purchase supplies from the franchisor or from a preselected vendor. Be sure their rates are competitive. Paying above market prices for your supplies or product erodes your profit margin.
- Beware of making an emotional purchase based on your personal preferences for a product or service. Do your research to be sure it is a good business opportunity and that it suits your skills.
- If it is a fairly new franchise, ask why they decided to franchise as opposed to expanding their business by opening additional locations or licensing. Find out how many locations they had before they decided to franchise their business model. How successful are those locations?
- Talk to every franchisee you can before purchasing. Any franchise is like becoming part of a family, so you want to know everything about them.
- If a franchisor is overly enthusiastic about signing you up without in depth knowledge of your skills, qualifications and financial backing, be cautious. Most franchisors are very selective, and look for the best qualified candidates who possess both the skills and capital needed to succeed.
A resource for you is the Federal Trade Commission (FTC) web site. They have publications written for consumers purchasing a franchise. Go to www.ftc.gov and put the words “buying a franchise” in the search box. “Thinking about Buying a Franchise?” and “Considering a Franchise? Pause to Analyze” should display on the first page of the search results.
You’ve found two or three franchises that may fit the bill. They match your interests, your life style and your skills. They are within your budget and you can see yourself successfully operating any one of them. You’ve navigated all the issues above and are comfortable with the information you’ve received.
Excellent, you’ve made a good start. Now you need to take an in-depth look at your finalists.
To find out how to reduce your short list, check out our book “Killer Business Plan” on Amazon.com. Available in paperback and on Kindle.
Dispatches From The Front 