Investing in a Franchise?
The decision-making process pertaining to investing in a franchise is a challenging one as there are so many things to consider! When you have been talking with representatives from the franchissor, all the information was good and positive ... invest your money, buy their franchise opportunity and you will be set for life! Careful consideration should be used, however, to see if owning a franchise is right for you before you invest your time, effort and money.
With that said, lets ask some questions to see if you can determine if investing in a franchise will work for you along with helping you decide which type of business would be best for you.
Questions To Start With: These Are About You!
Where do you want to be with the business in two years, five years or ten years?
Should you invest in a franchise that will allow you to start part time and develop it into a full-time business or choose one that you will be fully committed to and working full time from the start?
Will a new business keep your interest? Will it keep you motivated and challenged? Remember if you love what you are doing it will be easier to build a successful business.
What are your strong points? What talent or experience will you bring into your business?
What do you enjoy doing: cooking, working with children, fishing, working on cars, bookkeeping, or is your interest in landscaping? All of theses areas offer franchise opportunities. If you enjoy being around children, maybe a daycare center franchise would be your best choice instead of an auto repair shop...both will make money. Do what you enjoy!
Would you rather work with your mind instead of physical labor?
Are you good with people or would you prefer to be behind the scene? Are you friendly and can talk with everyone? Or shy and timid? For example, if you have a hard time talking to people, you may quickly decide against a franchise that promotes being a motivational speaker to earn money.
Are you willing to work and build the business over time or do you expect fast results? How do you like to dress...suit and tie everyday or would you rather wear jeans, a tee shirt, and your favorite baseball cap? How do you feel about wearing a company uniform?
Do you prefer to work inside at the same location everyday or would you rather work outside at different locations?
Will you be willing to work under the franchisor's guidelines? For example: After investing in a franchise coffee shop, the new owner found a bakery that made excellent pastries and muffins. Since the franchise didn't have a supplier, the franchisee decided on his own to put the product in his store. The customers bought them and enjoyed them, and this added to the daily profit. On a visit to the store, the corporation informed him that he COULD NOT sell the pastries and that they had to be removed immediately. Tough rules, indeed, but the corporation wanted to maintain the quality level that people have come to expect when they stop at one of their stores.
Can you work long hours, be on your feet if needed, or would you prefer to work behind a desk? What hours do you prefer to work? Are you a morning person? Coffee shops and donut shops require people that like to be up very early, Bookkeeping will allow you to start your day at 10am. A plumbing franchise may require you to be available 24 hours a day.
Investing in a franchise will affect your family! Are they behind you in this new effort? Will they be working with you? Being with your spouse 24 hours a day, will it be enjoyable or become agony? When you have completed a day at work, do you want to be able to leave it behind and pick up and enjoy your private time? Will you be able to schedule time off or will you need to work every workday to keep your employee costs down to an acceptable level?
What is the franchise fee to become involved and be granted the right to operate one of their businesses?
Do you have the capital to get started or will you have to get a business loan?
What does your credit report look like?
Will you be able to get a loan for the funds needed?
Does the franchisor offer assistance in financing the up-front costs?
Do you have a cushion of funds to help you continue your business if you have a few slow months? If you do have a down time and income is slow to come in, will it cause you to worry?
What happens if funds allotted are not enough to meet your needs to get the doors open. The cost of equipment or other needed supplies may increase before you actually get them purchased.
To get this business running how much of your personal assets are you willing to risk?
What additional cost will you be facing when investing in a franchise?
What will be your cash investment? How much of the funds are paid up front? If you have a problem and need to back out of the agreement is there a way to receive any of your funds back?
How much will you need for equipment and inventory?
After making your investment in a franchise, what percentage of the gross income will be profit? Take a look at this example: If you invest $300,000 into a coffee shop and your profit margin is $2.00 per cup that sounds great.That means you have to sell 150,000 cups of coffee to reach a breakeven point on your investment. Over a 5-year span, that`s 30,000 cups per year or 82 cups a day. But wait, there is additional expense with labor, lights, advertising, phones, purchasing more inventory to replace what has been used, and the expenses go on and on. How long will it be before you are actually making a return on your investment, eight years, ten years or more? That $300,000 at a 5% interest would have been worth over $382,000 using simple interest. How many years will that move your break even point projection date?
Will the corporation co-op ads for your location?
Can the franchisor mark up the cost of inventory that they provide to you? Are you allowed to purchase inventory from outside vendors? If a franchisor locks you into purchasing all of your supplies directly from them, they will control your profit margins!
Starting and Locating Your Business.
Location is key so who will be responsible for finding the new location for the business? Will you have any input on the location? Most corporations have people that know the demograhics of the area and will be the ones that will find the location.
Things that need to be considered as far as location include: Will people be able to see your business? Will it be easy for people to get to your location? Are there intersections and/or traffic lights? Are there landmarks that will help you give directions to your business. Are there other businesses nearby that will help attract people to your business? On the other hand, are there businesses nearby that would hurt your particular business? For example: A needlepoint store located next to Big Earl's Harley Custom Choppers that caters to bikers may intimidate the little old ladies that might be interested in your needlepoint.
What will the franchisor provide in the way of training? Will there be an extenive training period? Will all of your staff and partners receive the training? Will there be any unforeseen costs for training once you've made an investment in a franchise?
Once you sign all the documents what will the time frame be before your business will open its doors?
Final Considerations Before Investing in a Franchise.
Before investing in a franchise make sure you get all of the costs in writing! Take your time and know what the total expense will be. Go to other locations if possible and speak with the owner. Find out if they are happy with the franchisor. Were their projections accurate? As with any business, add additional funds for reserve unforeseen expenditures. Check with more than one franchise to figure out what will work the best for you.
While this article on investing in a franchise has been filled with questions, you should ask even more on your own. You are preparing to make a decision that will affect your life. Make use of as much information as you can to make a good sound decision!
To help you get more information about growth, market share and trends we recommend getting
Before investing in a franchise read these articles:
Owning a Franchise: Is This The Right Choice For You?
How To Find a Good Accountant
Life's Choices and Making Decisions Along the Way