You’ve recognized the appeal of entrepreneurship at some point in your professional life, for various reasons: to be your own boss, to have decision-making powers, or to gain satisfaction from building and owning something that brings income. Then again, maybe you have trouble thinking up a clever business idea, and see patrons flock the donut shop or convenience store on the corner every day. Suddenly, a franchise seems like a very appealing prospect.
Before you break out your severance package to splash for a spanking new coffee shop, however, here are a few factors to consider before buying a franchise.
1. Franchises are by the book.
If you fancy yourself as a creative type looking to put your own spin on a franchise, look elsewhere. Franchisors enforce a strict set of rules and regulations on how franchisees should manage the business, down to the smallest detail. The reason a chain store has over a hundred branches in several states is due to a proven formula. Be prepared to implement those regulations to the letter.
2. It should match your personality.
This means choosing the right type of business with your preferred nature of work and experience. It makes sense that you should be familiar or have an inclination to the type of franchise you want to run. Jot down your personality traits and find a franchise that best suits those traits. This will maximize your chance of success.
Whether you are the artistic type or a numbers-crunching kind of person, a business should complement the way you interact with work and your interactions with people. A comprehensive personality test like the Myers-Briggs Type Indicator (MBTI) would not go amiss in this case.
3. Evaluate you financial readiness.
It is very tempting to dive head-on to a franchise when you have the money. Stop to think of all the costs that entail setting up that franchise, as it is not simply coughing up for the sticker price. Many factors come into play like marketing costs, down payments for building or land rent, sales commissions and so forth. You may to prepare six months’ worth of capital to allow your franchise to gain proper traction.
4. Carefully choose a franchise consultant.
A consultant can help ease you into starting a franchise hassle-free, or that person could just be trying to goad you into signing on to a franchise that he is selling. It is important to tell that distinction, and the only way to do that is to do thorough investigation of prospective consultants.
Do not hesitate to ask questions, get to know them well. Invest time and effort in hiring the right consultant, and your venture may yield lucrative results.
5. Learn more from other franchisees.
Owners of a franchise should know plenty about the benefits and difficulties of the investment. Do not hesitate to ask them about their experiences. Learn about the advantages and disadvantages of the business, its profitability, the level of support from the franchisor, the most demanding aspect of running it, and other relevant information.
Talk to multiple franchisees to get a better idea of the challenges ahead. Compare your findings with your own pros and cons list to assess which aspects align with your expectations, and the risks you’re willing to take.
6. Franchises still need marketing.
No matter how recognizable the brand you are carrying is, name alone will not bring customers through the door if they do not know it exists in the first place. Headquarters may take care of promotions nationwide, but the franchisee is still responsible for marketing in his/her local territory. Allocate enough time and resources to drive awareness of your business, be it promotions in your local community events, sponsorships and early-bird discounts among several other ways.
7. Brush up on the Franchise Disclosure Document.
Franchisors are required to provide a prospective franchisee with a Franchise Disclosure Document (FDD), which contains all the legal information you need to familiarize yourself with the business. It is important that a franchisee understands the content of the FDD, as it has all kinds of useful information,such as the franchisor’s litigation and bankruptcy history, hidden costs, and termination terms, among others. The FDD may come off like legal text, but there are ample guides on how to read and understand the content.
Owning a franchise will present some challenges, but no worthy endeavor is easy. Make sure to do extensive research, weigh your risks, and put in a genuine effort to achieve lucrative results.