2020 is proving to be a volatile year for the economy, job market, politics, and more. Potential entrepreneurs looking for their next investment are wise to explore franchise opportunities since they are sometimes virtually immune to recessions.
Is now the right time for you to explore buying a franchise? Read through this piece to see if it’s the right business option for you.
Why Buy a Franchise?
Owning a franchise provides numerous potential benefits. Forbes wrote a whole article on this, but we list several here, including:
- Less risk as you enter the startup phase
- Clear investment expectation in terms of cash requirement and the potential return on investment
- The benefit of built-in brand awareness
- Training and operational processes, procedures, and policies are pre-defined.
Now, you may be looking for a step-by-step process for how to buy a franchise. As with most things, you should know that purchasing a franchise includes nuance, so you should leave space for that. The nitty-gritty details are where Raintree flourishes in our niche. That being said, there are some components you should consider as factors for success.
Below is a list of helpful hints and tips for entrepreneurs who want to open a franchise.
1. Perform Due Diligence
It sounds obvious, but you would be surprised how many people take what is presented to them at face value. When buying a franchise, you don’t want to be “sold.” You want to enter into a business deal with a full scope of understanding and disclosure as a partner. You can enlist the help of others who have been through the process or who specialize in the buying and selling of franchises, and we’ll dive into that more later. You should do your part to review the documentation provided to you and pursue and identify information accessible on the internet, which is in abundance in this day and age.
Between online research, the assistance of a supportive person or team, and requests for information you make directly to the Franchisor, you should be able to identify any potential red flags and accurately assess the financial health of the business opportunity you are researching.
2. Know Thyself
Plato may not have been talking about owning a franchise when he coined the phrase “Know thyself,” but it applies here nonetheless. Not everyone is capable of entrepreneurship, and not every entrepreneur makes a good Franchise Owner. Try to think through some of these personal reflection questions to determine whether this is right for you.
- Have you delivered results as an entrepreneur?
- Have multiple people told you they see you as entrepreneurial?
- Do you have the cash required to launch a franchise, not to mention the appropriate level of risk tolerance?
- What sort of business works with your lifestyle?
- What model suits your skills and interests while also aligning with market opportunity?
Let’s say you are presented with an opportunity to buy a franchise that seems like a great opportunity, but it requires more scheduling flexibility and expertise than you have. Do you take the plunge and try to plan for contingencies, or do you strategically research opportunities that meet your requirements? We would not recommend asking questions about franchise opportunities if you haven’t asked them first.
3. Understand Why You Buy
Okay, this one dovetails slightly from our previous point, but we think it needs to be addressed directly in more depth. Having the desire to be a business owner, and identifying companies that fall in your price range is only a small piece of the puzzle. As we said, you should know yourself well enough to know what unique value you bring to the table in owning a franchise, and this knowledge extends to a strategic market position.
For instance, did you know women are increasing in number as Franchise Owners? Why not leverage the position by looking for financing opportunities that might be unique to women-owned businesses? Further, what if you researched a company whose market is women but is owned by a man? What could you bring to the table as a woman buying franchises that could give you and your business an edge?
4. Interview Other Franchise Owners
What better way to gain an in-depth understanding of what Franchise Ownership looks like than to speak to a Franchise Owner? We recommend spending some time accumulating general knowledge about owning a franchise from a current Franchise Owner, even if it is in a different industry. These conversations can yield helpful, generalized information about Franchise Ownership, lessons learned, and expectations.
If possible, we strongly encourage you to have a conversation with a current or former Franchise Owner of the company you’re considering purchasing. While some geographic market factors may leave room for nuance, they will provide a depth of insight that you can’t get anywhere else. Franchise Owners are a great source of information. Use this time to ask pointed, direct questions about their experience, recommendations, satisfaction, and success level.
5. Perform a Cost Analysis
State and federal laws vary as to the requirements of specific franchise contracts, so you will want to thoroughly understand what is required on your part in terms of financial contribution, capital investments, and varying costs and fees. Be sure everything is laid out and carefully defined in any written agreement you sign. Franchise fees can vary widely depending on the brand and what is included in the franchise package. Couple this with operational investments and ongoing costs, and you’ll need to ensure you have the cash outlay necessary to get up and running.
6. Enlist the Help of a Professional
As knowledgeable as you may be, enlisting the help of a professional agency can provide supplemental expertise and manage some details, which frees you up to focus on your strengths. Raintree has an extensive network of brokers, in-house sales, consultants, and marketing experts who are well-rounded professionals in the franchise space. You will be working hard and spending vast amounts of time and money in the initial start-up phase. Allow Raintree to research and speak into the nuance of segmented market availability and strategic digital marketing.
Let’s Recap, Shall We?
As you know, there are no free lunches and very few guarantees in life. The level of return you may see when buying a franchise is contingent upon your knowledge, skill, entrepreneurial spirit, cash flow, due diligence, and ability to put forth the time to make it a successful endeavor.
Franchisors have an interest in your success, which makes the agreement mutually beneficial. Therefore, it’s in your best interest to understand one another, the business model, the opportunity, how it aligns with your contribution, and engage support when you need it.
Franchises are historically successful at least partially because they have a profitable model and process that is repeatable, which requires a spirit of entrepreneurship tempered with the desire to repeat what already works.
Featured Image: Shutterstock / Fizkes