Franchise 101 – Is franchising the right decision for me?

For a variety of reasons, you have decided that owning/operating a franchise might be the right move for you. Based on information provide in the Federal Trade Commission guide to buying a franchise, we have derived the following questions and information, which may help you determine whether or not it’s the right decision.

What are your reasons for wanting to own/operate a franchise?

• I want to be my own boss. To some extent owning/operating a franchise will provide this freedom. However, you still have to do things the franchisor’s way and you’ll be held accountable.
• I want to work my own hours. You need to be aware of the standard hours during which the franchise is required to be open. This often includes weekends and some holidays. You may also have to work very long hours while you establish the franchise.
• I’m retired and want extra income. If you’re ready to start taking it easy, a franchise may require more work and effort than you are willing to expend as a retiree.
• I want to start my own business but don’t have a lot of capital. If you want to start a business where you make the decisions, you may not be happy with the restrictions that are placed on a franchisee. Franchisees also have to have some investment capital available.
• I want to get rich quick. Franchises usually take time to become profitable and then may never ‘make you rich.’
• I’m bored with my current job. Owning/operating a franchise takes time, effort, money, research, people and business management skills, and a whole lot more. Franchising may be the right choice for you but you may need to do more research.

Do you have the experience, personality, and skills to be a franchisee?

• Owner/management experience. Although franchisors can provide management training, help with business plans, and marketing advice, having prior management experience is desirable. You will, however, also have to be able to defer to the franchisor’s proven way of doing things.
• Self-motivation. You will need to get the franchise on its feet. You will be responsible for hiring, training, and motivating employees. You will need to keep the business going during hard times. You will need to be a quick learner.
• Resilience. Can you bounce back after a setback?
• Confidence. Are you highly confident that you can be successful? Do you have a positive outlook?
• People skills. Your employees are one of your most valuable assets and you must be able to successfully hire, supervise, train, and mentor them. You will also have to creatively resolve issues for customers and act as the franchisor’s representative to the public. It’s absolutely essential that you are able to effectively interact with people.

Do you have the financial resources required to own/operate a franchise?

There are several financial components to look at when you are considering buying a franchise. Although the cost of franchises varies widely, a consensus of the information found on franchise Internet sites indicates that a potential franchise owner should have, at a minimum, the following financial strengths:

• A good credit score (generally 700+)
• A net worth of at least $100,000
• At least $25,000 - $30,000 readily available to invest

There is no guarantee that you can purchase or get a loan to purchase a franchise, but these three financial components will almost always be required. Some franchises require less investment capital and some require a great deal more; some have more stringent financial requirements and some have less stringent requirements. You need to research specific franchises in which you have an interest to find out what their specific financial requirements are.

How will your decision impact your family?

There will be physical, emotional, and financial strains placed on you and your family. You should consider the impact of the following conditions:
• You should have sufficient income and/or savings to support yourself and your family until the franchise begins to generate income. Often it can take a year or more.

• You may have to work 12-16 or more hours a day for an extended period of time to get a franchise up and running. Many franchises are also open on weekends and holidays and many also require that you work full-time.

• You must decide if you are prepared to put your financial future at risk. Starting a new business, even a franchise, can be risky.

We hope that Franchise 101 has given you some insight into the things you might want to think about before deciding that owning/operating a franchise is the right move for you.

Sources
United States Small Business Administration
Federal Trade Commission