Franchise opportunities are ideal for some budding entrepreneurs, but they are not right for everyone. How do you know if you should invest in a franchise? These five questions can help you decide.
- Are You Willing to Follow the Rules?
Franchise opportunities often require the business owner to follow an exact formula. You can’t choose the color of the walls or the hours you’ll be open. You’re expected to follow a proven formula that the company dictates. It will cover almost every aspect of your business.
If you view operating your own business as a creative outlet, a franchise is not for you. Personalization is usually not an option. People used to strict regimens, like military veterans, often do well at operating a franchise.
- Are You Financially Secure?
Franchises can have high start-up costs. For example, fast food franchises are usually lucrative businesses, but you need about $750,000 in liquid assets to become a McDonald’s franchise owner. There are also lesser-known brands that have franchises that cost less. You’ll also pay a royalty fee based on your gross sales, advertising costs, land and or leasing costs, plus a range of other normal business costs.
According to Franchise Direct, most individuals with good credit end up financing the majority of the costs with a loan from a bank or credit union. Having the Small Business Administration offer a partial guarantee for the loan is an option if the franchise is SBA Approved, but this is no guarantee the loan a lender will approve the loan. Franchisor financing, usually done through third parties, are an option with some franchises.
- Can You Find a Franchise That is a Good Fit?
Buying an affordable franchise where other franchisees have made a good income is smart. Buying one that you will enjoy running is even smarter. You’ll be spending a great deal of time there, and if the business is not a good fit, you will be miserable. Franchises don’t run themselves. If you’re a couch potato, you probably won’t enjoy running a fitness franchise.
- Do You Have Family Support?
It can take a year for most franchises to earn a profit. You’ll end up working long hours during the first year too. If you have a family you’ve been supporting, can they maintain the home and pay the bills without the same level of financial support you once provided? Additionally, the long hours can put a strain on them with extra child care expenses and you’re having to miss spending as much time with them.
- Are You Willing to Accept Professional Help Before Committing?
A franchise agreement is a long, complicated legal document that you should have a lawyer who specializes in franchises review. You will also be presented with a Franchise Disclosure Document, which also contains a great deal of information. You will want an attorney, and possibly an accountant, to review this document as well. Not understanding even one small part of these agreements can result in a nasty surprise later.
Take a good, honest look at yourself when deciding if a franchise is right for you. It can mean the difference between financial and personal success or failure.