Franchise Ownership: Investigate Before You Invest
Business Solutions It’s important for you to begin your search for a franchise off right. That means doing a bit of self-investigation.
It used to be much harder to investigate franchise opportunities. People who were interested in becoming franchise owners had to set aside several hours of local library time, and most of that time consisted of finding the right resources, not investigating. Even with a superb librarian at your side, trying to learn about franchising and digging deeper into specific franchise opportunities was a mostly frustrating process.
Investigating a franchise can still be frustrating, but it’s not because there’s a lack of information — there’s plenty of that available. The trick is to find real information; the type that can help you make an intelligent, fact-based decision on whether or not you should buy the franchise of your dreams.
Where to start?
Determining if you’re franchise material.
Not everyone is cut out for franchise business ownership. There is risk involved; buying a franchise doesn’t come with a guarantee. Not only do you have to make sure you pick a franchise that’s right for you, you also need to make sure you’re 100 percent (or at least 95 percent) comfortable with the actual business model. In other words, you need to be able to follow the rules—and there are a lot of them—laid out by the franchisor. If you don’t like rules, or can’t generally follow them, franchise ownership is not for you.
Uncovering your top attributes.
Before you power up your computer or tablet to start your search for a franchise, go somewhere quiet, free from any and all distractions. Take out a notepad, and start writing down a list of your top attributes…including your top business skills. What are you good at? What are you considered to be the “go-to” person for? Are you really good at managing things or are you better at managing people? Are you a stellar salesperson? Are you great with numbers?
Now that you’ve done some self-analysis, it’s time to determine what you can afford. It’s a waste of time to look for franchises that may be a fit if it turns out you can’t afford them.
Start by doing a net worth statement. List all of your assets and list all of your liabilities. The difference between the two: Your net worth. Now you have something to work with.
"Become a matchmaker. Try to match your top skills to franchises that will allow you to utilize them."
Most franchisors have minimum net worth requirements of at least $250,000 these days, which you’ll see on their websites. In addition, there’s probably going to be a liquid cash requirement.
Total upfront costs for a franchise range from $40,000 for a home-based franchise to over $1 million for a fast food franchise. Sit down with an accountant or financial advisor to help you determine your maximum budget for a franchise.
Making your choice
This should be an exciting time in your life. You’re “imagining the possibilities.” You’re going after your dreams. You’re closer to “being the boss” than you ever were. You’re going to become overwhelmed.
That’s right; a few days of pecking away (on your computer) trying to sort through all of the “possibilities” can get exhausting. It’s easy to get confused. There are so many choices in franchising.
To help manage the opportunities, focus on these three things:
Only investigate franchises that you can easily afford.
Don’t go over budget unless you’re capable of adding (and dealing with) a lot more stress in your life. If you’re nervous about the money, investigate home-based franchises.
Your top attributes.
Become a matchmaker. Try to match your top skills to franchises that will allow you to utilize them. For example, if you are a great manager of people, look at franchises that can potentially have a lot of employees. Or, if you’re great at sales, look into B2B franchises.
When you’re investigating franchises, try to visualize yourself as the owner of the specific franchises you’re looking into. In other words, can you almost instantly “see” yourself as the franchise owner? If so, keep digging. If not, dig a little. Maybe your visual was wrong. Study what you can about the franchise, and what the owner’s role is. You may be surprised to learn that the opportunity is a good fit for you.
In order to get to the heart of the matter—in this case, moving towards a yes or no decision on a specific franchise opportunity— serious research has to be done.
"Investigating a franchise takes time. If you do it right, your dream of business ownership can be realized, and success may be yours."
A lot of your exploration will be based on the information you gather from the Franchise Disclosure Document (FDD). The franchisor is required to give you access to this legal document well before you sign the actual franchise agreement.
Tip: Make sure you hire a franchise attorney to look over the FDD before purchasing the franchise you’re interested in.
In the FDD you’ll find enough data to keep you busy for quite some time. Such material as background information of the franchise executives, litigation, and more are revealed.
However, the most important part of the FDD is the “list.”
You’ll get a list of every current franchise owner, and even former franchise owners. Their contact information is included so you can contact them and ask questions about their experiences as current and former franchise owners. This list is golden. Calling people—even visiting one or two of them in person—will be the most valuable thing you can do as part of your investigation. They have already taken the plunge into franchise ownership, and they’re your best source of information. Some videos are included to give you an idea of the questions you should be asking.
Investigating a franchise takes time. If you do it right, your dream of business ownership can be realized, and success may be yours.