Starting a franchise is an exciting opportunity. You are starting a business but not starting from scratch. You essentially borrow the franchise business model and leverage the brand equity already established to kick start your business. Sounds pretty great, right?
Before you jump into a franchise business head first, take a moment to consider the following 5 factors. They could mean the difference between success and failure, or at least between a smooth, wind in your hair ride or a bumpy, nausea-inducing ride.
The simple business principle of supply and demand certainly applies when you’re considering a franchise opportunity. As yourself:
- Is there demand for this product or service in the area you’re considering?
- What is the business landscape (i.e., what other businesses are around)?
- Who is your target demographic?
- Can you regularly find your target demographic in the area you’re considering for your franchise location?
- What are your customers’ buying behaviors?
- Is this product or service seasonal or evergreen?
- Is the product or service long-standing in popularity or could it be a fad?
A little market research will go a long way.
You are considering a franchise to make money, but as the old adage says, “you have to spend money to make money.” That said, you don’t want to spend money for the sake of spending money. You want to be smart about it. When factoring your initial and ongoing investment in your new franchise, consider the following:
- How much will you need to cover the initial startup fees (e.g., real estate, licensing, equipment)?
- How much liquid capital do you need to maintain to cover the franchise until you break even or see a positive return on investment?
- What are the ongoing franchise fees?
- What are the royalty expectations?
- Will you need to pay advertising fees to a local, state, and/or national advertising fund for the franchise company?
- Will you need financing?
- What is your credit score?
- Where will you seek out financing?
Purchasing a franchise comes with a set of expectations from the franchise company that you would not have if this were a clean slate, start-from-scratch company. The restrictions are put in place to ensure compliance with the business model and consistency across the franchise network.
According to “Buying a Franchise: A Consumer Guide” released by the Federal Trade Commission (FTC), “these kinds of restrictions may limit your ability to exercise your own business judgement in operating your outlet. That said, if the franchisor does not limit the territory where each franchisee can sell, the franchisor and other franchisees may compete with you for the same customers, either by establishing their own outlets, or by selling to customers in your area through the Internet, catalogs, telemarketing, and the like.”
Restrictions could include:
- Franchise location / territory
- Design or appearance of premises
- Approved suppliers
- Goods or services permitted for sale
- Method of operation
- Advertising / promotions
Your Skills & Competencies
Starting a franchise business will likely not be your first job. Consider your knowledge and experience cultivated over the years. What skills can you bring to this business venture? Are you familiar with the industry and/or business you are purchasing? Taking stock of the skills and competencies you already have, as well as any gaps that you’ll either need to develop or seek assistance with, will give you a better sense for your strengths and weaknesses. This information will ensure you go into this — or any — new business venture with your eyes open and prepared to face what comes next.
Passion & Drive
Even if everything looks amazing on paper, the opportunity still may not be right for you. Owning a business comes with a host of challenges and certainly ups and downs that you must be willing to endure and work through to be successful. And even then, success is not guaranteed. So take a moment (or two) to do a little soul searching. Are you truly passionate about starting this business? Why? Are you driven to do what it takes to see this business succeed? What does that look like for you?