For many, professional and personal responsibilities tend to slow down during the summer months, thus allowing for a chance to use those valuable vacation days to relax and recharge. A vacation also provides the opportunity to spend time evaluating your career, ambitions, and direction, especially if starting your own business has been a recurring consideration. Starting a business is an exciting proposition, but it can also be a challenging undertaking. Summer downtime lends itself to fully vetting this major and exciting career change. Being away from the office in a relaxed environment gives you space and time to discuss your new career path with family and loved ones, to investigate all of the elements of entrepreneurship, and to consider your long-term business goals.
Many first-time entrepreneurs face the dilemma of deciding whether to start a business from scratch or to buy a franchise. The allure of developing your own start-up and being an independent business owner can be tempting, but there are many advantages to buying a franchise. Purchasing a franchise provides the independence of owning a small business while also providing the benefits and support of belonging to a larger business network. In addition, most franchises offer initial start-up support, financial assistance, and training programs to help you to successfully launch your new career. With thousands of franchise systems operating in the United States alone, beginning the search can be a daunting task. To ensure that you find the right fit, follow these six industry-proven tips when conducting your franchise search:
1. Do your research:
When you begin to explore franchise opportunities in which to invest, the first step is to do your research. It is imperative that you fully understand the fine print and details that the franchisor has provided to you. The Federal Trade Commission requires franchisors to provide a disclosure document called the Franchise Disclosure Document (FDD). The disclosure document contains useful information, such as financial details, product and service offerings, and leadership information. The FDD is an excellent place to start when considering a franchise.
In addition to the FDD, speaking with multiple franchisees and visiting their offices can provide further insight into the day-to-day operations of their businesses. Although you will surely find happy and content franchisees during your search, it can be helpful to speak with unhappy or dissatisfied franchisees as well. This will provide further understanding of the pros and cons associated with investing in a specific brand. When speaking with the franchisees, preparing questions about training programs, ongoing support, and their personal experiences will definitely garner useful insight.
2. Understand your financials:
Regardless of the franchise opportunity you are considering, be sure to honestly evaluate your financial situation. Start by assessing your net worth, including all assets and liabilities, as this is the first step in determining what you can and cannot afford to invest. Financial advisors typically recommend investing no more than 15 percent of your net worth in a franchise.
When launching any business venture, you should not expect to be profitable right from the get-go. Before making a decision, it is important to budget for living expenses based on the lifestyle you want to maintain. In exchange for using the brand’s name, there are also often additional costs that you will need to account for aside from the initial franchise fee, such as expenses allocated toward an advertising budget and monthly royalty payments that may be required. If you are considering using a bank or credit union to help with financing your venture, the type of franchise you choose to purchase could influence the institution’s decision to provide financial support. Fully understanding your financials will outline what it will take to reach your goals.
3. Evaluate market opportunity:
When considering any business opportunity, it is imperative to first analyze the market you will be entering. This is especially important when conducting your franchise search, as you will want the industry you choose to be poised for growth and expansion. To start, research sales growth and profit trends within the industry over the past several years. A thorough examination of your market also involves considering what other similar businesses or products are already established in your area. This will naturally provide competition for your customer base. Before investing in a specific franchise, be sure that you understand what will give your business an edge over competitors in the market.
4. Know yourself:
To select a franchise opportunity for which you are well suited, it is essential to understand your own personality. The franchise in which you invest should aim to satisfy your professional aspirations while complementing your personality and skills. For example, evaluate how hands-on you want to be throughout the lifespan of your business, how much time you are willing to put into launching your new career, and if you agree with how the brand operates under the franchise model. Regardless of the franchise, there is an established model that you will need to adhere to, so it is crucial that you fully agree with these terms and conditions.
It is also important to understand any aversion you may have to risk. Although purchasing a franchise offers more stability than opening your own business from scratch, there is no way of completely mitigating risk in any situation. It is necessary to fully understand what level of risk you are willing to take on when you start a franchise.
5. Harness your skills:
With thousands of operating franchises in the United States, the multitude of options can quickly become overwhelming. An easy way in which to initially narrow down your search is to evaluate your personal skills and knowledge. Even though you are starting a new career, it doesn’t mean your prior experience should be completely disregarded. Before you begin to look at specific brands, it can be helpful to narrow down your choices to only the industries you think would be a good fit for your skillset. Finding an industry and franchise model that suits your professional skills will aid in setting you up for success.
Most franchisees have several traits in common. For instance, many are customer service focused, comfortable with leading teams of employees, and have an understanding of financial concepts. Once you begin to narrow down your options, many franchises offer surveys or questionnaires to determine if you would be compatible with them. In addition, owning a franchise often requires wearing multiple hats. You will need to be open to developing solid knowledge of the different aspects of your business to ensure that operations are always running smoothly.
6. Consider your location:
When conducting a franchise search, you also need to identify the ideal location for your new business. Oftentimes franchisees will wait to identify a location for their franchise until after they have invested in a brand, but this is a decision that should be made in advance of an investment. Depending on the franchise in which you invest, the agreement can potentially set geographic limits on where you are permitted to open your business.
It is also important to check if you are guaranteed a protected territory, which means no other franchisee could open a franchise within a certain geographical radius. When it does come time to consider potential locations, be sure to evaluate each potential area closely. Specifically, you should consider traffic patterns, parking, foot traffic, and the proximity of other businesses.
Starting a new career, particularly as a first-time business owner, can be stressful, and it can often be difficult to finally take the plunge. However, if you think owning a franchise may be for you, be sure to take advantage of downtime during the summer to conduct a thorough search and to do your research. This is the first step to identifying the right opportunity that fits your personal and professional aspirations. Use the summer months to transition into franchise ownership and build a business you will cherish for a lifetime.
View the full article on page 24 in The Franchise Handbook.