Most franchisees want to be business owners, but also want the comfort that comes with following an already established and proven business model. Even though joining a franchise means not having to go it alone, it’s still a big step, as it will mean running a business, which is no small task.
Before jumping in with a franchise, there are some things you should do to prepare yourself for the responsibility of running a business.
1. Know why you want to start a business
Anyone who wants to start a business, regardless of whether it’s a franchise or a standalone, should evaluate why they want to start a business. It’s a huge responsibility and a lot of hard work combined with a significant amount of risk. Joining a franchise does take some of the risks out of the equation, but it’s not a guarantee that a business will be successful. What is it you want out of business ownership? The answer to that question will determine if you should even pursue business ownership.
It’s also worth it to take a look at yourself and decide if you really want to follow a template or if you want to create something from scratch. As a franchisee, you’re not going to be able to paint your business whatever colours you want or have promotions whenever you feel like it. You’ll need to be satisfied following an established system.
2. Study franchising
A lot of would-be entrepreneurs choose to franchise because it offers a head start to business ownership. But, you should fully understand what franchising involves and what will be expected of you. The Canadian Franchise Association and the International Franchise Association both have a plethora of information for anyone thinking of getting into franchising, as does FranNet.
3. Choose the right franchise for you
Thousands of businesses have chosen to expand via the franchising model, which means you have a bevy of options to go with. Knowing which one is right for you involves making a decision based on a lot of factors. Your interests, how much money you have for an initial investment, how much responsibility you want to have in a business, your goals and many other variables go into making the ultimate decision about which franchise to go with.
And it’s not just you. The area you live in will also determine what franchise you go with. If you live in an area that is already being served by the franchise of your choice, you may not be able to purchase that franchise. Or, there may not be enough interest in the business that you want to join. You’ll need to be flexible and open to the idea of running a business you didn’t initially choose. A franchise broker like FranNet can help you to find the perfect franchising fit.
4. Study franchises
When you have a shortlist of franchises to choose from, study up on them. Play detective and see what you can find out about them online. Talk to existing franchisees in their system, check out their track record and make sure you do your due diligence before you sign anything. Not all franchise systems are the same. You don’t want to get locked into an agreement with a bad franchisor.
When you talk to franchisees in the system, don’t just stop at a few. Talk to at least 10 so you get a complete picture. Inquire about the pros of the business, as well as the cons and the hidden costs involved. Other questions worth asking existing franchisees are: How long before they became profitable? How much did they budget and how much did they actually spend? What is the toughest aspect of building the business? How easy is it to find employees? How much support did the franchisor give them?
5. Have a plan to procure financing
Most franchises will help out with procuring financing and some will even provide financing in the form of loans. Nevertheless, it’s a good idea to make sure your credit is in order and that you can get financing when the time comes.
Related to this, be aware that it could take a year or even longer for your business to become profitable, even if you are joining a well-known brand. Your expenses will go well beyond the minimum expenses of the franchising fee and equipment. You’ll need to do a lot of marketing when you start, for example.
Not only should you read as much as you can about the franchise you’re thinking of joining, you should also read the Financial Disclosure Document (FDD) in its entirety when you do choose a franchise. These documents can run 50 pages or more and they contain a lot of legalese, but it’s important that you read it completely because it contains pertinent information. The FDD will tell you about any bankruptcy filings of the franchisor, any litigation it has faced, the training it offers, costs that you may not have thought of and much more.
7. Hire help if you need it
If you’ve never done any business accounting or you aren’t comfortable reading legal documents, consider hiring professionals to help you. An accountant can help you assess whether you are ready to take on a franchise and a lawyer who specializes in franchising can look over your FDD and translate it into more palatable terms and let you know how the franchise agreement will affect your finances.
8. Perform a cost benefit analysis
This need not be complicated. A simple list of pros and cons can help you make a decision on whether you want to pursue a franchise or try to open your own business. On the pros side, put down the things you’ll be getting like established brand, a proven market, guidance with business, training, etc. On the cons side, put down anything that will cost you like franchising fee, marketing costs, royalties and markups on the merchandise you may be required to buy. Even something as simple as this will help you decide if franchising is the right way to go.
Before you take the big step of purchasing a franchise, take the time to explore whether this is the right option for you. Performing a little bit of due diligence now will pay off in the long run. To find the perfect franchise, sign up for a free FranNet franchise search and consultation.