When starting a business in Denver, it’s apparent that you will have unlimited options. You can choose to start everything from scratch, buy an existing business, or even team up with a franchisor who has an already-proven business model. Each business venture has its own perks but there are several items to consider when researching a small business for sale.
Denver is blooming with opportunities for small business owners. Unlike the first two choices, franchising is an efficient way to go into business for the first time. For some business owners, however, franchising is not worth the time and effort. They believe that a franchise restricts their area of operations while still forcing them to share profits with the franchisor.
Not sure whether a franchise is the best small business for sale? Denver has deep roots and the leading franchise consultant in Denver is here to qualm your worries. Before we dive in too deep, let’s first understand the terms surrounding this business arrangement.
What is a Franchise?
Franchising refers to a business arrangement in which the owner, or franchisor, grants the rights to their business model and logo to a third party, known as a franchisee. The right to sell products or services is the franchise.
Types of Franchises
Typically, there are two primary types of franchise opportunities. These are facility-based and non-facility based. Additionally, there are 3 main categories of franchise options and different roles you can play based on what the franchisor allows.
The three main categories are:
- Simple Retail
- Sophisticated Retail
- Service-Based
The different roles you can consider range from being the artisan to playing the CEO role.
With all these options, it’s evident that there are a lot of things to consider and think about before you even decide which franchise might be a potential fit for you.
Let’s now look at the advantages of franchising.
1. Franchising a Turnkey Business Opportunity
Buying a well-established franchise system is a surefire way to have the potential to succeed in business. Perhaps, this is because a franchisor has already defined a vital territory, assists in negotiations for a lease, most likely already has approved architects to allow for entire build-out and many good franchisors assist in best hiring practices to collaborate efforts of finding the right staff to consider employing.
For you, as a franchisee, this helps you hit the ground running even without prior experience of having started a business before. It’s speed to market. However, it’s always a good idea to do your homework before buying any franchise. Sometimes, the terms and fees that apply may not always be favorable so it’s important to know which type of franchise to acquire when researching for a small business for sale. Denver has a unique market so understanding your audience variables is also an important factor in acquiring a successful franchise.
2. Established System in Place
As mentioned above, when considering purchasing a franchise, what you are buying is a business in a box. The marketing, operations, technology, customer acquisition, HR, Training, and Support are already figured out. That means there’s a proven system that you must follow while distributing products and services from the franchisor’s model.
What’s even better, the franchisor provides you with leadership support ensuring that you adhere to brand guidelines and quality standards. Working under a proven system helps you to eliminate guesswork and common challenges that most business owners face. This way, your time and your money go to making money instead of trying to figure out how you are going to make the money.
3. National Brand Recognition
There’s just no substitute for great marketing. You can make the world’s best space-age sprocket but if people don’t know about it, they won’t buy it. And here’s where franchising truly shines; by using a national marketing fund the franchisor is able to combine monies from the franchisees and buy superior advertising to create national brand awareness. This national marketing fund is also used to create more professional advertising that can be utilized by the individual franchisees in their local markets.
How important is this national advertising? When Yum! Brands Inc., a parent company to Taco Bell, advertised their new menu item, fiesta platters, during the 2008 Super Bowl, they had 100,901 million viewers. That’s power in numbers!
Whether your franchise provides a service or a product, you will probably benefit from a purchasing contract procured by the franchisor that provides you with steep discounts due to the heavy volume purchased. These discounts may apply to the ingredients for a food product, the equipment to make the product, delivery vans, store fixtures, office supplies or any number of other items.
4. Reduced Risks
It’s well known that creating a business is a risky undertaking. However, there is a way to reduce that risk. You can give up the total freedom associated with being an “independent owner” by becoming part of a group of people committed to building a brand and dominating markets using a common, proven operating system. You don’t have to guess about the most effective way to build your business; there is a proven system to use.
How much does buying a franchise reduce your risk of failure? According to the U.S. Department of Commerce, franchise businesses are exponentially more likely to succeed than individual new start-ups, particularly if you look at the figures over a five- or seven-year period. According to the Department of Commerce figures, after seven years 91% of new franchises are still in business, as compared to only 20% of individual new start-up businesses.
If you don’t like statistics, let’s make this simple: owning a franchise is like having a roof over your head in a thunderstorm. Opening your own business is like having an umbrella.
5. You Enjoy Exclusive Territory
The good franchisors only allow a limited number of franchises to operate within a specific geographical location; therefore, providing you protection with your territory. For business owners, buying a franchise means acquiring an exclusive territory for you to do business.
Besides having a protected location, you’ll enjoy an already established system in place, unlike a mom-and-pop business. Following everything to the letter means you’ll, without a doubt, be on your way to possible abundant success.
6. Marketing
A franchisor’s system-wide marketing program can be a great benefit to a franchisee but also a potential source of conflict when the contributions are mandatory. The real source of contention is not that such a fund exists, and these funds are very common in franchising, but because the franchisor, not the franchisee, decides how it is spent.
Without a marketing fund, each individual owner would be on his own, doing advertising on a much smaller and less-noticeable scale. Your franchise will be seen in a more positive light if your marketing is done by experienced professionals than if you print off flyers designed by you or someone else inexperienced in the integrated brand-building efforts of the franchisor.
7. Get Free Training
Since the whole point of franchising is to create a successful business model for the delivery of a product or service and then finding a way to duplicate the results, buying a franchise is like the Disney FASTPASS. You can go to the head of the line by buying a franchise with a tested and proven business model, an existing customer base and, in many cases, a turnkey package for getting the business ready to open to the public.
But, as they say on infomercials, that’s not all! A solid franchise company will also provide its franchisees with all the training they need to set up and run the business. They will provide ongoing help and support, marketing materials, operations manuals, and opportunities to meet with other franchisees. Depending on the type of business, a franchisee may supply a corporate call center, customized computer programs or field support personnel to help you achieve your goals. Being a part of a strong franchise system as opposed to being an individual business owner means that you have an entire organization invested in your success.
8. Obtaining Financing for a Small Business for Sale – Denver Franchises
One of the most misunderstood topics in franchising is financing. It is also one of the most important. Let’s say you don’t have all the money needed to start a franchise operation and want to get financing for the balance. Your first choice for financing – a bank – may not be your best. You need to gather information and develop a good working knowledge of the likely parameters of financing that apply to you and the best sources of information about program options for you to pursue.
Bank Financing
Most people think that getting a loan to start a business is just a matter of talking to a bank. After all, isn’t that what banks do – loan money to people who need it? They figure they’ll explain their reasons for wanting this particular business, outline the projections for how much money the business will make and then the banker will loan the money based on this projection. The loan will be secured and paid back from all the assets and profits of the new business.
There is zero chance that this scenario will work.
If you walk into any bank and tell them that you want a loan to start a new business, you won’t get any money unless you can completely collateralize the loan through your own personal assets. In other words, if you have cash, stocks, home equity and other semi-liquid assets that could easily repay the loan if the business defaults, they’ll probably give you the money (but if this is true, you don’t really need a business loan).
If you have sufficient personal collateral to secure a loan for the amount you need, especially if it is in your home equity, the easiest and cheapest way to get the loan is to set up a line of credit at the bank for the amount you need. Don’t even discuss a business startup at all with the banker. Whenever a banker hears that you’re going to start a new business, it raises multiple red flags and creates issues that will just slow you down and cost you more money.
The Small Business Administration
Let’s assume you are not financially strong enough to take this approach. You’re going to need help. The other options potentially available to you include government-sponsored programs like the SBA, non-banking loan sources and lease options. These each have many variations, but the common denominator is that they will be willing to take more risk so your chances of getting money will be better. The dollars you get from these sources will also be more expensive (in terms of fees or interest rates) to offset the increased risk.
Two common misconceptions about the SBA are that it loans money and that it is willing to do so on an unsecured basis. Neither of these assumptions is correct. The SBA has programs where it will work with lending sources like banks to guarantee the repayment of most of a business loan. This is done because the bank will not loan the money without the guarantee. The SBA charges fees to the borrower to offset the risk of making such guarantees. The SBA also has stringent requirements in relation to security that must be met before it will agree to issue the guarantee. This may still be your best option but keep in mind that it’s not automatic.
As a general rule of thumb, you’ll need to have your own cash available for at least 30% of the total investment required for the franchise business. You can also expect that any lending source will probably require personal guarantees that effectively will pledge all your assets to protect any loan.
The best source of information about the options that might be available to you is the franchisor you are interested in joining. They should be familiar with the costs associated with each option and the likelihood of you obtaining financing from any particular source. Many franchisors have already set up programs with selected financial sources to facilitate the rapid funding of their franchisees. In this case, they should be able to walk you through the process with a minimum of hassle for you. The first thing you should do, once you’re fairly certain that you’ve found the franchise you want to get, is to request this information from the franchisor and start looking into your options.
9. Ongoing Operational Support
Lastly, buying a franchise means going into business for yourself but certainly not by yourself. And, not only will you have the entire corporate staff to be there for help and support, there are many other franchisees in the system you can leverage their knowledge and gain support from the ones that have gone before you.
It still takes you to make it work
Any good franchise is one that supplies franchises with a business in a “condition ready for immediate use, occupation, or operation,” according to a dictionary definition. In most cases, a franchisor will do a lot to get you up and running but you will still need to take care of several start-up items yourself.
They are meant to be your business partner, all the time, every day. It’s their job to make sure you are successful, so they are dependent on you having success – it’s the only way they continue to grow.
But don’t forget that there is still one element of the equation that a franchisor cannot provide – and that’s the drive, talent, and determination of the franchisee to make the business successful. That is completely up to YOU!
Consider A Franchise When Searching for a Small Business for Sale, Denver Entrepreneurs
In a nutshell, buying a properly executed franchise system can be a life-changing investment. However, you must carry out sufficient due diligence before signing the franchise agreement. When looking for a small business for sale, Denver based business owners should consult with a standing franchise consultant. Careyann Golliver will help you steer clear of franchises that have poor design or management as well as help you through the entire acquisition process.
Other suggestion:
Is it all blue skies? To be fair, franchising is not the perfect business ownership vehicle for everyone. To be successful, a franchisee must be willing to follow the franchisor’s system. If you are someone who likes to tinker with the business and make changes, you will spend too much time “fixing” instead of attracting customers. Butting heads with the franchisor will not make you a successful franchisee.
Additionally, an important part of any franchise system is that the franchisor will collect royalty payments from each franchisee in return for the training, support and the use of the brand. Most franchisors also collect advertising fees, as mentioned above, for use in national branding and marketing efforts. If you start your own business or buy a business opportunity, you probably won’t be making these payments (or getting the benefits!) so this is an important consideration.
Finally, before you even begin to research franchise opportunities, it is important that you identify all your needs and motivations for looking into business ownership. Make a list of what you hope to accomplish as a franchise owner, and this will help you when it comes time to make your final decision for this investment.
Success in franchising takes skill, effort and time but if you are willing to invest these resources, your reward may be that you finally achieve the career you’ve always dreamed of.