5 Things to Know Before You Franchise

5 Things to Know Before You Franchise

by Jane Haskins, Esq., August 2017

franchise.jpg

 

A franchise puts you in the express lane to business ownership, setting you up with a business model, a system, and a recognized brand name. With a franchise, you get the independence of being your own boss without having to start a business from scratch.

Buying a franchise can be far less risky than starting a brand new business, but your success will depend on knowing what you're getting into and choosing the right opportunity. Here are five things to know about yourself and your franchise before you take the leap.

1. Is Franchising Right for You?

Franchising gives you a ready-made business system, but you still have to do all the day-to-day work of running a business. You'll deal with your landlord, order supplies, hire and fire employees, mop the floors, and run promotions to get people in the door. You'll have to follow your franchisor's rules and procedures rather than doing things your own way.

You should be willing to work hard, be confident enough to be the sole decision-maker, and be comfortable doing things “by the book" instead of coming up with your own creative ideas. And you should be able to tolerate a certain amount of risk, because success in business ownership is never a sure thing.

2. What Kind of Lifestyle Do You Want?

A brick-and-mortar franchise tethers you to a particular location, where it's likely you'll put in long hours, including weekends. If you have options, choose a location where you'll be happy to put down roots. If you have dreams of travel, flexibility, or spending long weekends with friends, a service provider franchise or a seasonal franchise business might be more your cup of tea. Or you might prefer a regular job that provided the option to work from home.

Sort through these issues before you even look at specific franchises. Your business isn't likely to succeed if you feel trapped or the lifestyle isn't what you wanted.

3. Can You Afford a Franchise?

Most franchisees finance their venture by borrowing—from the bank, the Small Business Administration, a relative, or their own retirement savings or home equity. Some franchisors offer financing to their franchisees. Most of these options will require you to have an adequate credit rating and a down payment.

When deciding whether you can afford the franchise, look closely at the Franchise Disclosure Document to see what your costs will be, including the payments you will need to make to the franchisor. Compare those to your expected income. Make sure you can expect to earn enough after expenses to pay your debt, pay yourself, and still earn a profit.

4. Is This Franchise a Solid Investment?

When you've found a franchise you like, look at its track record, including how long the franchise has been in business, how many franchisees there are, and how many franchise locations have succeeded or gone out of business. Look at the history of the franchise owners, too. Failed franchises, bankruptcies, or a rash of lawsuits are red flags for trouble.

Make sure there's sufficient demand for the product or service in your area. This means sizing up the competition and looking at whether your franchise agreement will give you exclusive rights in your locality. It's much harder to succeed in an oversaturated market.

5. Will You Have the Support You Need to Succeed?

A good franchise has thorough and well-documented systems for running the business. But there are franchises that provide only vague information and leave you to fend for yourself. This can lead to confusion, costly mistakes, and disputes between you and the franchisor.

Franchisors vary in the amount of training and support they provide. If this is your first business venture, you may want to have someone to go to if you have issues or questions once you're up and running. Talk to current franchisees to find out what it's really like to own and operate this type of franchise.

A franchise lets you own your own business while benefiting from someone else's expertise, name recognition, and business systems. Before you commit yourself, though, make an honest assessment of your own goals and temperament, and take the time to thoroughly research the franchise you're considering.