10 Factors to Consider Before Franchising Your Business

Your business’s growth is off the charts, and perhaps you’ve started to consider whether now’s the right time to franchise your business. But before you take the leap, you must consider how franchising will affect your business model, your customers’ satisfaction, and ultimately your revenue.

That’s why we asked ten entrepreneurs from Young Entrepreneur Council (YEC) the following question:

Q. Business is booming, and I’m thinking about franchising my company. What’s one thing I need to do or consider?

1. Your Team

Drew GurleyScaling is a big decision and it takes people who share in your passion for the business to keep it successful. Not only are you letting go of some control, but you are also bringing new faces to the team. Make sure your team is sound in all aspects and you have succession plans in place as promotions and shifts in responsibility occur. –Drew GurleyRedbird Advisors

 

2. Your Customer

Ivan MatkovicWhen franchising, your focus shifts from serving the end shopper to the people you are franchising your business to. Suddenly your company is more about optimizing the infrastructure for other people’s businesses and less about working with the people buying your product. This is a big transition for any organization and especially founders who are used to working directly with customers. –Ivan MatkovicSpendgo

3. Your Standards

 It’s a good sign if you have people or businesses interested in franchising your business. Now, you need to set minimum standards for what skills and experiences are required to run a business like yours and if those interested meet the standards. The criteria might include experience in your industry, a ready base of potential customers, and a certain amount of capital available to start up. –Nanxi LiuEnplug

4. Scalability

 The most important thing to consider before franchising is “is this business scalable?” Think about the systems you have in place and if they’re buttoned up enough to set up potential franchisees for success. You’ve probably encountered issues you needed to get through, so make sure you’ve thought through those things to ensure your new systems will work seamlessly for new owners and locations. –Josh YorkGYMGUYZ

5. Process Documentation

Marjorie AdamsDocument your processes at a high level. For example, if you are an HVAC company and want to franchise, take your top 20 calls and document the steps it takes to complete them. You may not capture 100 percent of your cases, but you want your new franchisees to be able to reference these steps. –Marjorie AdamsFourlane

 

6. Your Test Market

David CiccarelliIf you have yet to open additional locations, you’ll want to start by trying another location, ideally in a different city altogether where you can truly put your idea to the test. What works in your city may not work in every city because of cultural nuances, a city’s history, or even the climate and seasonal factors. Just be sure that you’re not missing a factor that could be contributing to your success. –David CiccarelliVoices.com

7. Your ‘Hook’

Mikhail ZabezhinskyThe key to franchise success is offering your franchisees unique products or services that they cannot get anywhere else, also called “hooks.” Consider what is going to prevent a franchisee from deciding a few years down the line that they know the business better than you and that they can do it on their own. –Mikhail ZabezhinskyOceanTech

 

8. Research

Kevin HenriksonThe most important thing you should do is research franchising. It involves a whole new set of laws, regulations, and other things you should consider before choosing to franchise your company. One other important factor to consider is whether or not your company is successful and presentable. Be sure that your company fulfills a need that is local enough to make sense to scale geographically. –Kevin HenriksonOutlook iOS & Android @ Microsoft

9. Quality Management

Richard LorenzenMany of our largest clients are franchise companies. What I have observed to be the biggest downfall when first franchising a company is not having a quality control system in place. You need systems that ensure the quality of your product or service is delivered consistently to all of your franchisees–otherwise, your brand will be tarnished quickly. –Richard LorenzenAchieveIconic.com

10. How Much Control You Have

Jyot SinghThink about scale and ask yourself how much control you want or need over each franchise. Do they need to be cookie cutter, or can owners have some freedom to regionalize and personalize stores? Then, look into best ways to retain the control you want to have throughout your franchises. –Jyot SinghRTS Labs

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Is Entrepreneurship the Key to True Job Security (and Happiness)?

By Mary Friese

It’s time to take a hard look at career assumptions. Who is your boss? Many people in our society are raised to believe that the best way to become financially secure is to get a job and earn “regular” income. The idea of safety, stability, and security fed by the receipt of a regular paycheck seems sensible.

But really, it is more a scenario of sacrificing freedom, empowerment, and control in exchange for taking orders dutifully. If you are competent, you may have the ability to switch jobs, but you could also get laid off in spite of your grand abilities. Further, when you want to increase your income, it is at the discretion of a boss regardless of the amount of hours or energy you put into your job, or how many jobs you try on for size.

As an employee, you willfully put yourself into a subservient position, one that really isn’t all that secure when you realize at any given time someone in a superior position at the company can say a few words and turn off all of your income.

So how can you have true job security when you have no control? This is the reason why many people choose to quit their jobs and become entrepreneurs.

Entrepreneurship: The Excitement of Starting Your Own Business

It is true that leaving your job behind and becoming an entrepreneur is a major life decision that comes with some risks, but when you run your own business, you relieve yourself from the ever-present threat of getting laid off. Also, when you are in business for yourself, there is a more direct financial benefit for your tenacity—the hours and energy you put into your business benefits you.

Gallup poll found that eight out of ten entrepreneurs are satisfied with their decision of becoming business owners and would do it again. However, experienced, successful entrepreneurs won’t mince words when it comes to the hard work involved in becoming a business owner; they can attest to the fact that your concerted efforts will repay you in ways simply “having a job” cannot.

When you run your own business, you will need to take on day-to-day challenges with a combination of determination, ambition, and grit. Since the buck stops with you, it’s up to you to make your clients happy, and it is up to you to market your products and services in order for your business to remain profitable.

You will need grit because you will be tested every day, frequently being pushed beyond your comfort zone. However, without strong support, you may find entrepreneurship overwhelming. This is why many entrepreneurs seek to find a perfect balance between independence and mentorship, and many people invest in franchises.

The Franchise Option

If you’re weighing the benefits of starting an independent business versus operating a franchise, ask yourself: Have I ever managed employees? Do I have experience relative to the industry? What are the strengths and weaknesses of the competition?

If you find you don’t have answers to these questions, perhaps it’s worth looking into investing in a franchise opportunity. A well-established franchisor can provide the answers to many of your startup questions with the added benefit of providing full ongoing support once you are in business.

Buying a franchise is investing in your own ability to increase your income without having to negotiate with a superior. No one outranks you when you’re the boss, and you can decide how much you get paid based on the grit, determination, drive you put into the business. Owning your own business is hard work.  However, working for yourself is much different than working for somebody else.  You’ll work harder for yourself than you will for someone else.

One of the crown jewels of franchising is the chance to receive ongoing support for the life of your franchise. Why turn down training for you and your employees in exchange for going solo? A franchisor becomes your silent partner and will get behind you with the full force of its brand, which should include national buying power to bring down costs with vendors and give a nice boost to your bottom line, too.

Count on joining a family of fellow franchisees who you will get to know at meetings and conferences, and look to them for mentoring. Representatives of the franchisor at the local level will become familiar faces who will work with you on a continuing basis as you grow your franchise. Note: they should become fixtures in the operation of your business only as you see fit, without micromanaging you. In this way, you are the big boss, but a strong entity has your back.

Finally, if you sign an agreement with a well-known franchise brand with a proven track record of enthusiastic franchisees, you will be doing yourself a favor. You do not need to be a human guinea pig, gambling your own money for a new, trendy franchise.

Working for a Boss vs. Being Your Own Boss

We are conditioned in this society to believe that working hard in school and landing a job with a stable company is the path to security and freedom, but there really can be no security or freedom when we work for someone else.

If you are in the position to choose between becoming an entrepreneur or simply getting a job, consider assuming the role of “boss.” Meet with successful entrepreneurs to find out what’s involved in running a business, and research franchise opportunities to see if there’s a fit there.

Remember, when run your own business, all of your hard efforts will come back to you in the form of a bigger piece of the pie, financially speaking.

About the Author

Post by: Mary Friese

Mary Friese writes enthusiastically about the business services industry with emphasis on topics relevant to current and future digital print, design, and marketing franchise success. She worked in the award-winning training department of Minuteman Press International through the 1990s, departing to raise a family. She has since returned as a writer, in large part because the corporate culture at Minuteman Press is such that it was as natural as returning home. She enjoys interviewing industry leaders and dynamic franchise owners from around the globe in order to compose fact-supported and inspiring stories.

Company: Minuteman Press International, Inc.
Website: www.minutemanpressfranchise.com
Connect with me on Facebook, Twitter, LinkedIn, and Google+.

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5 Valuable Lessons All Entrepreneurs Can Learn From The Founder

By Denis Shmidt

While technology continues to change and evolve, we are constantly reminded that human nature remains the same. The Founder, the story of the man who took McDonald’s from a single obscure location and turned it into a household name, has the same themes as a modern-day tech startup: high hopes, best intentions, friction between the “engineers” and the business, betrayal, a power struggle, and ultimately the rewriting of history.

For those who haven’t seen it, it chronicles the story of the Richard and Maurice McDonald, two brothers who engineered an unprecedented system to create fast, cheap, consistent, and “delicious” burgers. When their attempts at expansion fell flat and they were relegated to a single California location, in stepped Ray Kroc, who partnered with the brothers to expand their system and name nationwide.

What starts as a promising partnership, ends with the McDonald brothers losing their restaurant, the right to use their own names, the control of a multi-billion dollar empire, and even their place in the McDonald’s origin story. But did it have to end that way? Just as with countless startups where one founder is pushed out and erased from history, the McDonald brothers had multiple opportunities to stop their own demise. By waiting until it was too late, they sealed their own fate.

Here are five things entrepreneurs can do to avoid stumbling in their footsteps:

1. Don’t ignore disagreements.

The last thing co-founders want to do is fight. They have a million things to take care of, and addressing internal strife doesn’t even make the list. However, just like in any relationship, a disagreement that remains unspoken doesn’t disappear. It grows, festers, and ultimately spills over into every other part of your life.

In The Founder, every argument is cut short by a slam of the phone. Unsurprisingly, even when the two sides are not speaking, the disagreements continue and lead to lost sleep, spoiled relations, and even a heart attack. Sticking it out until a compromise is reached may seem like torture in the moment, but it could end up saving your business, your relationships, and maybe even your life.

2. Don’t lose touch as your business grows.

You may have been an indispensable member of the team in the early years, but as your business grows, that could easily change. Staying within your comfort zone and ignoring how your business is evolving is the surest way to become obsolete.

In The Founder, the McDonald brothers insist on maintaining control of their national franchise while remaining in California. This quickly creates a gap between what they believe and the reality of how their business is expanding. Without this knowledge, they constantly butt heads with Kroc, miss opportunities that Kroc is able to capitalize on, and ultimately become a hindrance to progress rather than its catalyst.

No successful business survives without change, innovation and growth. M&Ms began as an efficient and cheap way to transport chocolate to the U.S. military during World War II. Today, the candy has successfully shirked its militaristic past and targets families and children with an endless assortment of colors. After the war, anyone who worked at the candy company and started out in military procurement would have had to change and adapt quickly, or move out of the way.

The same goes for you. If your business started as B2B but is now marketing directly to consumers, you either need to change with the times or watch as someone else takes the reigns.

3. Don’t let yourself be bullied.

There’s a difference between being combative and standing up for yourself. Not everything needs to be a fight, but allowing others to walk all over you is just a prelude to having them walk you out the door.

In The Founder, Kroc continues to push the limits of his agreement with the McDonald brothers without any negative consequences. He publicly announces himself as the sole founder of McDonald’s and inventor of the McDonald’s method, calls the first store he opens the original McDonald’s, and consistently ignores the brothers’ instructions. The more he gets away with, the more he pushes, until he finally pushes the brothers completely off the map.

Picking your battles is important. Not every perceived slight is a potential coup for your company. However, being a doormat is the surest way of being left behind. Deciding when to stand up takes experience and perspective. Having an outsider, such as an advisor, mentor, or advocate, who is not mired in the day-to-day politics, and who can help you see the big picture, can be the best way of making sure that you’re protecting yourself without becoming the problem.

4. Don’t let your partners define your options.

If a dispute does develop, it’s time to stop seeing your co-founders as partners and start seeing them for what they are: adversaries. If they are trying to push you out, everything they say is designed to do just that. Just because they frame your options in a certain way, doesn’t mean you have to accept them. Get outside professional help and explore all options before making a decision.

In The Founder, Kroc makes his final power play after having established a large corporation and with significant resources at his disposal. He freely admits that he violated his written agreement with the McDonald brothers and that they would likely win in court, but convinces them that they just don’t have the resources. Believing him, the brothers sign away their rights in exchange for a miniscule fraction of what their shares are worth and deprive themselves, and their descendants, of billions of dollars in future revenues.

As a litigator, this deal had me wanting to shout at the screen. The myth that a larger company cannot be beaten is just that, a myth—especially when the stakes are so high. Had the McDonald brothers sought competent legal counsel rather than being convinced by Kroc’s self-serving statements, we’d all be eating at…well, it would still be called McDonald’s, but you get the point.

5. Put it in writing!

Despite countless stories of co-founder disputes, a “gentleman’s agreement” continues to be a common and popular method of “formalizing” a partnership. Whether it’s the romantic notion of a “handshake” deal, the want to avoid awkward conversations, or just being too busy to sit down and hammer out a formal written agreement, these verbal agreements continue to persist. Having a written partnership agreement is the single smartest and easiest thing you can do to protect yourself.

In The Founder, even after Kroc has lied, cheated, stole from, and taken advantage of the McDonald brothers, he proposes a “handshake” agreement for their stake in McDonald’s Corp. Miraculously (for Kroc), the brothers accept. As the movie ends, we are told the obvious: The handshake deal was never honored, could not be enforced, and today would have been worth billions of dollars.

If your partner is willing to make you a promise verbally, they also should be able to put the promise in writing. If it’s put in writing, make sure you understand what you are signing. After spending years of your life and all of your savings creating a company, don’t cut corners at the finish line. Get someone who can help you understand the agreement, negotiate to make sure you get the best deal possible, and who will ensure that the agreement is honored.

If history has taught us anything, it is that the great thinkers are all too often pushed aside by the ruthless. The difference between those who are left standing and those that fall is whether they’re prepared to push back.

About the Author

Post by: Denis Shmidt

Denis Shmidt is the founder of Orsus Gate Law, a litigation boutique that helps companies recognize, mitigate, and avoid risk. After working for an international law firm and the County of Los Angeles, Denis now focuses on emerging to mid-sized organizations with a specialty in founder disputes.

Company: Orsus Gate Law
Website: www.orsusgate.com
Connect with me on Facebook, Twitter and LinkedIn.

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8 Warning Signs You Shouldn’t Buy a Franchise

By Bruce Hakutizwi

There’s no doubt that buying into the right franchise at the right time can be a fantastic business opportunity for numerous reasons:

  • Proven, duplicatable systems make startup and growth easy and scalable
  • Established branding and national marketing support enhance your own marketing efforts
  • Support from a parent company and community of fellow franchisees

However, it would be naive to assume that every franchise is a potential good buy. Just like any other aspect of business, “consumer beware” holds true in the search for a valid and promising franchise opportunity. Sad to say, there are companies peddling franchise opportunities with no goals beyond collecting upfront franchise fees and moving on. And then even more common, there are franchisors that really want to help their franchisees succeed, but are struggling to support their franchisees effectively.

In either case, sincere entrepreneurs who are looking to invest in a franchise opportunity they can rely on for steady income over the long term will need to identify and avoid bad franchise choices, or they risk wasting time, money, and effort sailing a sinking ship.

The following are eight warning signs that can help you identify a franchise you shouldn’t buy.

Don’t buy a franchise if you notice . . .

1. A high-pressure sales pitch. Worthy franchises that have proven track records of success also have reputations to uphold. When you’re investigating a franchise, you should feel like you’re at a job interview, not a get-rich-quick real estate seminar. If the franchisor’s representative seems desperate to get you to sign, pressures you to make a quick decision, or keeps throwing discounts in to “sweeten the deal,” politely take your leave.

2. Inadequate, incomplete, or missing paperwork. The law is on your side if you’re buying a franchise; the sale of franchises is highly regulated on both the federal and the state level. There are important documents that a potential franchisee should receive, including a Franchise Disclosure Document (FDD). If any vital documents are missing, unprofessional in appearance or content, or intentionally vague in how they’re worded, there’s a very good chance the franchisor is hiding something or hoping to find buyers who won’t know there’s a problem.

3. Salespeople and paperwork that don’t sync up. In some cases, the salesperson can be very professional and helpful, and the documentation can seem perfect, but if they’re telling two different stories, it raises a serious red flag. Legally speaking, you’re going to be bound by what’s on paper. Good salespeople who work for bad companies can make a franchise opportunity seem more secure, less expensive, or more lucrative than it actually is.

4. A checkered past. Just by doing some basic Google searches, you should be able to determine what kind of reputation a franchise company has. Is there a long history of legal problems? Are other franchisees complaining about the company? Has the franchisor recently experienced serious financial trouble or some sort of public relations nightmare? It’s important to recognize that no company is perfect and you’re bound to find the occasional negative review no matter how trustworthy a company is, but if you’re seeing a troubling trend, pay attention.

5. An age-franchisee imbalance. Generally speaking, the older and more established a franchisor is, the more franchisees you should expect to be on board and succeeding. If those two metrics are highly unbalanced—in either direction—there’s likely something wrong. A franchisor that just incorporated last year and is already boasting over one thousand successful franchisees is likely either lying or is providing absolutely no support to those business owners. Likewise, a franchisor that’s been in business for 50 years, but only has 34 franchisees, may not offer the kind of support you need.

6. High franchisee turnover. Item 20 of the FDD reports how many franchisees have left a franchise system within the last three years. As a rule of thumb, the less expensive a franchise is to join, the higher the turnover rate will be. That’s just logical based on the business owner’s level of commitment. However, a high turnover rate in relation to the total number of franchisees—especially if startup costs are relatively high—is a sign the opportunity may not be viable or the systems being duplicated aren’t working anymore.

7. An inadequate training program. A solid franchise training program should allow someone who’s never worked in an industry and never owned a business to get up to speed and succeed quickly enough to ensure profitability within a reasonable period of time. If anything about the proposed training program appears to be inadequate, too short and hurried, or too long and drawn out, you’ll definitely want to talk to existing successful franchisees who have already been through the program. If you’re still not comfortable, don’t move forward.

8. Tinkering and experimentation in the business model. One of the key benefits of buying into an established franchise (as opposed to starting your own business from scratch) is the fact that the business model, processes, and other aspects of business operations are (supposed to be) tried-and-true, time-tested methods that have been proven successful. If a franchisor prides itself on constantly changing methodology, or if current franchisees are having a difficult time keeping up with how many “strategic pivots” the parent company makes each year, that key benefit is gone. Apparently, the “proven, duplicatable system” doesn’t work.

If you’re investigating a franchise opportunity and don’t encounter any of these warning signs, there’s a good chance you’re looking at a legitimate opportunity. Even then, however, it’s best to have a team of experts (business broker, lawyer, CPA) assist you in reviewing documentation and comparing various franchise options before you settle on the right one for you.

About the Author

Post by: Bruce Hakutizwi

Bruce Hakutizwi is the U.S. and international manager of BusinessesForSale.com, a global online marketplace for buying and selling small- and medium-sized businesses. With more than 60,000 business listings, it attracts 1.4 million buyers every month. Bruce manages business development, content building, client acquisition, and customer retention in the United States, Canada, South Africa, and Europe. Bruce frequently writes on topics that promote entrepreneurship and small business ownership.

Company: BusinessesForSale.com
Website: www.us.businessesforsale.com
Connect with me on Facebook, Twitter and LinkedIn.

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Important Questions to Ask Before You Buy a Franchise

Did you know that you must go through an interview in order to invest in a franchise? If you want to become a franchisee, your first order of business will be to speak with the franchisor (or a representative on their behalf).

The franchisor will ask you questions about your background and goals, if you have any existing experience in the industry, your plans for building a customer base and financing the franchise, and your exit strategy. While it may seem like a lot of questions, this is all about getting to know you in order to establish a relationship together.

However, you shouldn’t expect to interview with the franchisor alone; you should also speak with current franchisees. These franchisees will be able to provide further insight about what it’s really like to run a franchise—including the ups and downs of being in business.

If you’ve scheduled an appointment to interview and meet with the franchisor or current franchisees and have no idea what to ask, we’ve got you covered. First read the franchise company’s Franchise Disclosure Document (FDD), and then come prepared to your interview by asking these questions:

Sample questions to ask a franchisor

After the franchisor has thoroughly interviewed you and has a solid understanding of who you are, it’s time to do the same in return.

1. Will the franchisor help me find a good location? Depending on where you want to open your franchise’s doors, the franchisor should have an understanding of the best sites available in a particular area. They also may be able to help you pick the best site for your franchise and, if need be, assist with lease negotiations.

2. Can you tell me more about your training program? Beyond the procedures for training new hires, you should find out what’s involved in the company’s operational training program, and the types of additional support offered. Support can range from assistance during your grand opening to various types of ongoing support once your doors have opened.

3. Can you provide extra financial assistance? The franchisor may be able to assist you with your financing needs—or at the very least provide lender recommendations or support through the U.S. Small Business Administration (SBA). Beyond the initial franchise fee, Item 7 in the FDD outlines your additional expenses, which may include grand opening promotions, business and operating licenses, equipment, business insurance, and employee salaries. Other ongoing costs may also include advertising fees, accounting, and legal help.

4. How are disagreements resolved? While no franchisee wants to experience conflict with a franchisor, it could potentially occur. If there’s a disagreement between the franchisor and a franchisee, you’ll need to understand the best method for resolving it. Furthermore, it’s important to find out if the franchisor has had a history of disagreements—or pending lawsuits—with other franchisees in the past. You can learn about current or pending lawsuits of the franchisor  by reading Item 3 of the FDD.

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Outside of disagreements, you may also want to inquire with the franchisor what the contractual obligations, namely terminations and renewals, look like in your contact. Item 17 in the FDD touches on what franchisees must do to qualify for a renewal. A renewal is not an automatic guarantee from the franchisor, nor is possible that the renewal will keep to the same terms and conditions, so franchisees must ask if there will be any financial changes with their renewal of the franchise. If the franchise is terminated by the franchisor, you must ask about your remaining obligations to the franchisor. As an example, if you wanted to open up another franchise your contract may restrict the location and industry for the franchise.

Sample questions to ask franchisees:

Your conversation with a current (or former) franchisee may be a bit more laid back than it is with a franchisor since this is a franchisee-to-franchisee relationship. Ultimately, you want to get a better understanding of what a typical day in their world is like: the highs and the lows that come with owning a franchise.

1. What’s a typical day like for your franchise? The franchisee will be able to offer insight into the day-to-day operations that come with running that franchise, including success stories, challenging moments, and how much hard work, time, and energy will be spent on the business.

2. Are there any hidden fees? While you grill the franchisee on all things money—including the amount of time it took them to earn a steady profit—you’ll also want to inquire if there were any hidden fees or expenses. This will allow you to better financially prepare yourself to avoid any unwanted financial surprises.

3. What’s your relationship with your franchisor like? Keep in mind that the FDD will note in Item 20 whether franchisees have signed confidentiality agreements that keep them from speaking to you. If that’s the case, you may not be able to ask them about their relationship with the franchisor (or even chat with them, period). However, if the franchisee did not sign an agreement, they may be able to tell you if the franchisor has been supportive to their needs and has continued to reach out to them on a regular basis, which is a sign of a great franchisee-franchisor relationship.

4. Are you happy that you decided to become a franchisee? If you had to do it all over again, would you change anything? Pick another industry? Work with another franchisor? Or, are you content with the investment you made and wouldn’t change a thing? The franchisee will likely be honest with you about the decision they made—and hopefully, their answer is a positive one.

RELATED: 8 Warning Signs You Shouldn’t Buy a Franchise

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5 Questions to Ask Before Diving Into Franchise Ownership

By Eric Bell

Investing in a franchise requires extensive due diligence. Not only do investors need to understand the initial costs and what financing options are available, but they also need to carefully research the franchise model, the franchisor’s experience, the franchisor’s approach to running the business, and the culture of the franchise.

Just as important as researching the franchisor, future franchise owners need to assess their personal strengths, weaknesses, and work/life balance aspirations to make sure the franchise system they choose matches their personality and long-term goals. The extra time put in during the due diligence phase will pay off in the end.

Here are five questions to consider that can help you make the right franchise investment decision:

1. How much will it cost?

The costs associated with buying a franchise vary widely, depending on the industry you choose and the brand within that industry. There are many low-cost franchises that start around $10,000, but the majority of franchises require investments of $50,000 to $200,000 to get started. There are also many with startup costs that are far beyond this range, especially those of well-known brands including fast-food chains and retail stores.

Understanding how much your initial investment will be and the associated fees will help you to narrow down the industries and brands you are considering. For example, the cost of entry for a brick-and-mortar retail store or fast-food chain is going to be significantly higher than the cost of entry for a home-based business.

Almost all franchisors require their franchisees to pay a one-time upfront fee know as the franchise fee. Ultimately, you are buying the right to use the franchisor’s brand and business model, while also receiving ongoing support in management, training, marketing, and more. In addition, with most franchises, there will be ongoing royalty fees, which usually are a percentage of revenue, to pay after the franchise is open.

Some franchisors offer incentives for women, veterans, and minorities. When you research the initial investment requirements, ask if there are franchise fee discounts. These types of incentives could make the difference in whether or not you can afford that franchise.

The franchise fee and startup investment cover the costs to open the doors of your business. Also remember to budget at least six months of operating capital while your business ramps up.

2. What are my financing options?

Most franchise investors bankroll their franchise through some form of self-financing. This could be a home equity loan, a second mortgage, using money from savings, or even withdrawing funds from a retirement account. Here’s a quick overview of some of the options:

  • Rollover for Business Startups (ROBS)—ROBS allows you to use money in your retirement accounts (401(k), traditional IRA, or another eligible retirement account) to invest in a franchise.
  • Small Business Administration Loans (SBA)—SBA loans are government-guaranteed loans. They are a great financing choice because they offer long repayment terms and low interest rates.
  • Financing through the franchisor—Many franchisors have relationships with lenders that you can leverage. Preferred lenders have an understanding of the franchise’s business model, and may be more likely to offer financing.
  • Home equity loan or line of credit/second mortgage—This is an option for homeowners who have equity in their home. You can borrow against the equity to help finance your franchise.
  • Family and friends—If you have family members or friends who are willing to invest in your franchise, this could be a fast (and low-interest) way to raise necessary capital.

It’s important that you evaluate the many financing options available before you make a financing decision. The good news is obtaining financing as a franchisee is often easier than as a new, independent business owner.

3. How happy are the current franchisees?

During the exploration phase, it is critically important to meet with and interview existing franchise owners. Current franchisees will help you understand exactly what the day-to-day looks like, what their major challenges have been, and whether their relationship with the franchisor has been up to par. They can also help you understand what costs, if any, have unexpectedly arisen.

Speak with as many franchisees as possible. They may be busy, but they will want to give you their time as they understand the importance of growing the brand they have personally invested in. The information gleaned from these interviews can be invaluable. Some questions you should consider asking are:

  • What has been the most rewarding part of being a franchisee?
  • What has been the most unexpected struggle?
  • How many hours a week do you work? Is that more, less, or about the same as you expected?
  • What is a typical work day really like?
  • Are you happy with the financial returns to date? Do you feel you are on your way to meeting all of your financial goals?
  • What was the franchisor’s role in helping you open your doors?
  • Is the franchisor accessible when you need them to be?
  • Has the ongoing training and support from the franchisor been adequate?
  • Would you invest in this franchise opportunity again if you had to do it all over?

4. What type of support and training does the franchisor offer?

Franchise ownership requires you to not only invest your money but also your time. The initial phases of getting a franchise business up and running can be challenging, and over time you will require guidance and support. You want to make sure you are joining a company managed by experienced professionals, who have created a proven model that will grow with your business.

Franchisors should provide training programs that cover all aspects of owning and operating a successful business, from initial and ongoing training and assistance to marketing and advertising support. Most franchise systems also provide local support through franchise field representatives.

Proper training and support is not only essential in helping franchisees achieve the success they signed up for, but it is also crucial to building a franchise system that is consistent from one location to another. Without that consistency, the brand is not likely to grow to the levels everyone is working towards.

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5. Is the franchise a good fit for me?

Do your core values, abilities, and goals align with those of the franchise system? As a franchisee, you will be signing a long-term contract and be required to run your business as dictated by a prescribed set of guidelines. Franchisors can be very diligent about enforcing policies and procedures to maintain uniformity and ensure future success within a franchise system.

Here is what to consider when evaluating if a particular franchise is a good fit for you:

  • What are your personal goals for making this investment?
  • Does this franchise represent a particular field that you’re interested in pursuing?
  • How many hours are you willing to work?
  • Are you an independent thinker and worker, or do you work better when given some parameters?
  • Would you be happy operating the business for the next 20 years?
  • What specialized skills or talents will you bring to the business?
  • Does the franchise require technical experience or relevant knowledge?

Making the final decision

Buying a franchise is a big commitment that requires hard work and dedication. The most successful franchise owners are those who truly enjoy their business and putting in the time necessary to make it a success.

If you like the idea of being self-employed, and operating an established business, then a franchise may be the right opportunity for you.

RELATED: 8 Warning Signs You Shouldn’t Buy a Franchise

About the Author

Post by: Eric Bell

Eric Bell has 15 years of franchise industry experience and currently serves as General Manager of www.franchisegator.com. He began his career in 2002 as a Hollywood Tans franchisee in Atlanta, where he also served as area manager and helped develop the company’s Atlanta territory. In October 2005, Eric joined Franchise Gator as a sales representative, and went on to hold several positions, including sales representative, sales manager, and director of sales and service. Eric is a member of the Southeast Franchise Forum and is a Certified Franchise Executive.

Company: Franchise Gator
Website: www.franchisegator.com
Connect with me on Facebook, Twitter, and LinkedIn.

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Don’t Put Too Much Faith in Learning from Failure

Don’t Put Too Much Faith in Learning from Failure

We have heard and most of us believe that we learn from failure. But what’s the evidence that corroborates that? Perhaps our belief on failure followed by success doesn’t rest on a solid foundation, writes Professor Scott Shane, professor of entrepreneurial studies and economics at Case Western University.

There’s only one problem with the “failure helps” perspective. There’s no serious scholarly evidence that prior business failure enhances later entrepreneurial performance. Quite the contrary, the existing evidence indicates that entrepreneurs who failed before perform no better than novice entrepreneurs and significantly worse than previously successful entrepreneurs.

…More difficult to explain is the truism that “entrepreneurs learn from failure.” Our collective belief in its veracity stems less from a reasoned look at data and more from what we want to believe. The idea that prior business failure helps fits perfectly with the motto “if at first you don’t succeed, try and try again.”

You might say it’s fine to think that entrepreneurs learn from failure even if there is no evidence that it’s true. But this inaccurate belief has a cost. —Scott Shane, Small Business Trends

 

BMM Staff
Mon, 12/31/2018 – 05:40

Content Topic

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Shuttered Cold Stone

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