Are you looking to open a franchise business? If so, you should get in line. Countless entrepreneurs are looking to franchises to help expand their business horizons.
They’re great for learning the ins and outs of business and can develop nicely into a small empire. However, this only applies if you choose the right one and figure out how to run it properly.
This is the great hurdle of franchise ownership. Which franchise do you choose? It’s a complicated question, but there’s no shortage of answers. Here are a few factors you should consider before choosing which franchise to open.
Define your goals
Every business endeavour has a purpose. Nobody starts a franchise with the sole purpose of having fun. You might enjoy your work, but there’s always a more profound goal that motivates you to improve and expand the business. While this goal might seem obvious at first, this is hardly ever the case.
Money tends to be the main motivator for running a business, but there’s a lot more to it. How do you want to make this money? Should there be joy in running the business or are finances the main priority? Do you see yourself being in the same industry after ten years’ time? It’s important that you answer these and other questions before making your decision.
If the business is just a stepping stone and learning opportunity, you probably won’t pay as much mind to the exact industry. On the other hand, a franchise that complements your future ambitions would be more attractive if you intend to grow your own business from the ground up.
Start with confidence
Self-esteem plays an enormous role in franchise ownership and organization. Like most businesses, you have to start with some confidence that your franchise will succeed for one reason or another. If you’re
familiar with the business model or generally just good at running things, you’ll have a much easier time getting started and progressing further.
Not every franchise will suit your tastes and talents accordingly, which might influence your self-esteem while running one. This is why it’s crucial that you enter into the business with some form of confidence, as it will determine how well you can take it from there.
Start with your intuition. How likely is a certain business to succeed? If there isn’t much demand for a particular franchise, why bother with running it? Even if you manage to be the best possible franchise owner, there’s no guarantee that your business endeavour will succeed in a declining market. Consider your inherent skills and talents. Stick to industries that you know intimately or those that you’ve already been a part of. This gives you a clear advantage right from the start.
Consider your financial capacity
Starting a business isn’t cheap. This is just as true for franchises as it is for any other business, even though franchises have their specific costs. You might have a solid grasp of the kind of business you want to be a part of, but that doesn’t mean much if you don’t have the initial capital to get it to a good start. Not to mention, there’s no guarantee that the business will immediately go off to a good start. In most cases, you have to get by from your initial investment until the customer base picks up.
The great thing about franchises is that they already have an established following with strong branding. It’s a lot easier to take care of the initial investment when starting a franchise, considering that the franchisor will assist you with things like registration and organization.
Unless you have substantial savings prepared for the investment; you aren’t likely to start the business without some outside financing. Loans are your best bet for securing financing for a franchise. Banks and lenders are more likely to offer good loan rates for franchises, as they can be more reliable than businesses built from the ground up. This depends on the franchise and how an average branch performs. With good credit and an informed choice of a franchise, you will find that funding a franchise will be a lot easier than you might have thought.
Consult your schedule
Running a franchise is very similar to running any other business if you want it to be. Franchises can be run in a number of different ways when you’re a franchise owner. You can delegate the management to an employee and only stick to major decisions for the business. This can free up a lot of your time and allow you to keep focusing on a separate career or your family.
However, not every franchise can be run this way. Sometimes, you have to have a hands-on approach in every manner of the business. Without direct involvement, mistakes can be made and your investment might not be as lucrative. Many franchise owners are completely involved in every aspect of their franchise location. Everything from sales to interacting directly with consumers is practised, depending on the type of business.
If you have a tight schedule, this limits your opportunities. Working just weekdays already eliminates two-thirds of franchises. Some of these businesses demand your full attention, while others will be more lenient towards management needs. Consider this before you stick to a specific industry or franchise.
Pay close attention to the FDD
As you’re only running a branch of the franchise, you don’t have complete independence. The franchisor can make some key decisions that influence your business, without needing your say in it. It’s where the franchise disclosure document comes in. Also known as the FDD, this document tells you everything you need to know about the rules surrounding a franchise. It regulates everything from the design of the building to the fees that you have to pay the franchisor. It can regulate a whole lot more, but that depends on the individual franchise.
You will receive this document at least two weeks before you sign a contract with the franchisor. At over a hundred pages, you should consider it essential reading material for those two weeks. Get to know the ins and outs of running the franchise and how the franchisor’s decisions will affect it. If the terms don’t favour your style of business, you would do well to avoid the franchise in question.
Watch out for specific clauses that are significant when managing a business. There might be restrictions on suppliers, product types, training, and other things that directly impact your franchise’s performance. Keep in mind, this document also contains descriptions of previous business practices of the franchisor and their litigation. This can help you get a good view of how things will develop as time goes by.
Picking a faithful and reliable franchise is very important if you want your business to grow. Many franchisors aren’t interested in developing individual branches and only care about the fees that they receive from business owners. While this may not be a good long-term strategy, it’s still something you’ll encounter. After reviewing all the rules, make sure you go in for an interview with your franchisor.
Interviewing them will give you insight into their mentality and how they will support your business decisions. A good franchise will be led by someone with integrity, vision, and a penchant for those who wish to invest in their business. If everything you get is a cookie-cutter response with very vague predictions, it’s probably not worth the hassle. Make sure the franchise you choose is going to cooperate with you and not see you as just another expendable business owner to bring in a tiny bit of revenue.
Contact other franchise owners
While having a sit-down with the franchisor might give you some invaluable information, it might not be enough to give you a complete view of operations. For this, you’ll need to consult other franchise owners and their workers.
It’s not difficult to get a hold of them, either. You can just visit any current franchise branch and ask the manager in person. Alternatively, you can conduct a call if you’re too far and don’t consider a live interview to be a priority. You can find out about the day-to-day responsibilities of running the franchise and all the details that might not be immediately obvious.
Plus, you can avoid the delicately-crafted message of franchisors by talking to those that aren’t biased towards the business. It’s the most reliable way to get information about what your job will look like once you own a franchise. Make sure you don’t just stick to one franchise for your research. There’s no telling how they run their branch and whether or not it’s representative of the franchise at large. Visit a few of them and contact as many owners as you can to form a complete picture of the franchise.
Do your research
Research is what makes up the foundation of your business choices. You can’t gamble on an investment this large, which is why you want to be absolutely sure you’re getting into the right market. Both individual franchises and their markets can change at a moment’s notice. It’s hard to make predictions without the right kind of information, though.
Take great care when analyzing potential franchise opportunities in your area. See if there’s a market for it on the local level. Other businesses could have the market cornered, making it a lot more difficult to establish a franchise. Similarly, the population might not need a franchise at this very moment. Some areas lean more towards mom & pop businesses, while others see franchises as more attractive options.
The individual franchise you choose could be less viable than other franchises. This can and should influence your decision. Doing what you love is great, but there might be consequences for choosing a less viable option in the local market. Try to compromise by picking a franchise that matches your ambitions while also complimenting your chosen profession. It’s going to make a huge difference for your productivity and the potential profit of your business.
Analyze potential exit strategies
It’s not a topic that business owners like to think about. Having an exit strategy is essential for every kind of business, whether you expect to see further success or stagnation. How long do you want to run the franchise? Will you cash in on the investment or allow your successors to take over the reins? These are just some of the questions you must ask yourself before investing in a franchise.
Assuming that the business fails, you have to know when to jump ship. Sinking any more money into a failed endeavour is pointless, especially if the prognosis isn’t exactly positive. Whenever it seems like the situation is completely without hope, you should trust your instincts and move on.
A successful franchise can be a very lucrative investment. However, it’s not always the endgame for franchise owners. Do you see yourself running the same branch in five years or do you intend to move on to other endeavours? If you want to stay and pass your business down to your heirs, you have to plan accordingly. Some franchises aren’t scalable, meaning that there isn’t limitless potential for growth.
What if you want to cash-in and sell your business at some point? Selling the franchise to other businesses isn’t as simple as selling any other business. The franchisor has a say in what’s done to the overall business, even if you are the franchise owner. Consider the restrictions placed on your branch before you decide to open one.
There are many factors that determine the viability of particular franchise investment. You have to do quite a bit of research into the business before making this big of a decision.
Make sure you’re absolutely sure that the franchise suits you and that there’s a market for it wherever you mean to establish one. It’s a tough decision, but it’s a process every entrepreneur has to go through.
The good news is that it’s a lot more streamlined when it comes to franchises, so you shouldn’t have too many issues opening the franchise of your choice.