If you want to own your own business, you are probably considering a franchise. There are thousands of franchise businesses in many different categories and prices. Some cost thousands and others will run you hundreds of thousands of dollars. There are franchises that have been around a long time with hundreds of franchisees and others that are new with just a handful of locations. So where do you start?
Many franchise experts advise that you start by evaluating yourself. What are your interests and strengths? Are you a hands-on type of person or would you rather manager the people who do the work? Are you good at sales or will you need to hire others? What are your goals? Do you want to replace the income from your current job or are you looking for a business opportunity that will let you grow, expand and maximize your investment?
Of course, it doesn’t always work this way. Many times, a potential franchisee will visit a business and know instinctively that this is where she/he belongs. If you don’t have a business already in mind, there are many websites (such as Franchise Gator and FindaFranchise) that list franchise opportunities by type and cost. Forbes and Entrepreneur magazines also list franchises for sale, along with helpful articles on franchise selection.
Make a list of those opportunities that interest you and then request their Franchise Disclosure Document (FFD). This will tell you about the rules you will need to follow and your responsibilities as a franchisee. The FFD lists the fees you need to pay and includes information about the franchisor, including its financial and legal history. It also lists current franchisees and their contact information, so that you can get an unbiased evaluation of the business.
While compiling your short list, keep in mind that your finances will determine which business you can afford. A franchisor will set financial requirements to be sure each franchisee has the ability tobe successful. When a franchisee fails, it affects the franchisor’s reputation, and nothing is more likely to create failure than being underfinanced. How much you need depends on the franchisor but how you get your money varies.
You can borrow money from your 401(k) or other retirement accounts. You can use savings or get investors, and you may be able to get help finding a business loan from the Small Business Association (https://www.sba.gov/funding-programs/loans). Some franchisors will also provide a portion of the cost as a loan, if you meet certain requirements. Whichever method you use, you will need to have a good credit score and enough cash on hand to cover the down payment of financing the purchase (at minimum). You should also have the ability to cover your living expenses until the business becomes profitable (this is usually 3-12 months, depending on the business). Your experience is also weighed in the equation. The franchisor will need to be satisfied that you can provide a history of relevant experience. Industry experience is helpful as is management experience.
Once you have determined what you can afford and which franchise company you’d like to join, you can attend a Discovery Day event at your chosen business. If everything looks good, you will do a final verification of all the information provided and sign the Franchise Agreement. Get legal advice if you have any questions or if it would just make you feel more comfortable. Keep in mind that not every business succeeds so your due diligence is vital.
Franchise businesses make up a hefty portion of US businesses. Statistica.com estimates that 745,290 franchise establishments were in operation in the U.S. in 2017. If you’ve been downsized or just want see what options there are to your present employment, take a look at franchising.Back