For many of us, owning a small business is a significant goal. Owning your own business gives you the opportunity and freedom to call your own shots. However, starting one can be a challenge. You need to create a business plan, source products, or design services that are in demand. You need to understand financing and marketing, hire staff, find a location, build an effective website, and much more. If you’re thinking about starting your own business, consider a small business franchise!
The good small business franchise organizations can jump-start your efforts and bring speed to market so that your time goes toward making money instead of figuring out how to make money. A great franchise typically offers owners a proven business model, known products, or in-demand services, a marketing strategy and materials, site location assistance, lease negotiations and ongoing consultation with professionals who understand what it takes to succeed.
When considering a small business franchise, you need to assess your goals, your strengths, your interests, your reasons for ownership, and of course, your finances. Finding the right franchise opportunity can be challenging and requires research. You want to find an opportunity that you can afford, offers territory in your desired area, provides the proper support and training and has a successful track record.
Let’s look at some key elements when it comes to choosing the right small business franchise opportunity to meet your goals.
Narrowing the Field
Today in the US alone, there are over 781,000 franchise businesses established. They come in many shapes and sizes, from nationally recognized household names, to small, established, locally grown niche companies. According to Forbes Magazine, franchise businesses generate over $8.8 billion a year. Choosing the right small business franchise business for you can be daunting!
To narrow the field, you first need to define your goals, strengths, and weaknesses. You need to be brutally honest with yourself and determine what you’re trying to accomplish by buying a franchise. Here are some tips to help you begin the process.
- What do you want out of a franchise business?
Goal setting is an essential early step when it comes to choosing the right small business franchise. People buy franchises for several reasons. Is this going to be a transitional path to ultimately escape Corp America down the road while maintaining your day job? Or will it be your primary source of income? Are you looking to build equity? Will you eventually want to own more than one franchise?
The type of franchise you eventually choose will come from knowing what you’re trying to accomplish.
- What do you have to invest?
You might not yet know what type of business you’re looking for, but the amount you have to invest will give you a more realistic sense of what opportunities are available to you. You may want to purchase a national fast-food franchise, but you may need upwards of a million dollars to do it. Like any business, you also need to understand that just like any business, franchising is no different. There isn’t a business out there existing where you buy it today and make money tomorrow so you should have enough savings for day-to-day living expenses until you turn a profit.
If you’ve been doing your research, you’ve probably seen some opportunities promising low investments of $10,000 – $25,000. Be wary! There’s nothing quite as expensive as a cheap business! Typically, they’ll have a high turnover rate, there may be litigation issues, you won’t receive a lot of support and training or any, and you might not be able to resell it later.
- What are you good at?
Examine your skill sets, what you’ve done in the past, and what you’re comfortable with. For example, are you good with sales and comfortable making cold calls? Do you like interacting with customers in a retail setting? While you may have relevant skills, remember a good franchisor will offer the training and support you need to develop the additional skills you’ll need.
- How much risk are you willing to take?
Once you have your financials under control, you’ll have a good sense of how much risk you can assume, but also think about your personality. How much risk are you comfortable with? There are plenty of great franchises with long track-records of success, they’re reliable, but no longer “cutting-edge” and may offer lower margins. Newer cutting-edge companies are riskier and may not have the track record but can potentially provide higher returns. Determine which level of risk is right for you.
- Have an exit strategy!
Many business owners fail to plan an exit strategy. Be honest with yourself. Is this a business you want to operate for five years then flip, or is it a business you want to leave as a legacy to your children? This is an important question to ask before you buy. Many franchisors have different policies when it comes to selling. Some may have restrictions on selling to other franchisees, and some are just not sellable.
What to Look for in a solid Small Business Franchise Opportunity
If you’ve decided that a particular franchise is the right business for you, there are certain important factors to consider before you buy. Remember the devil is in the details! Here are some factors to consider when evaluating a potential purchase.
- Make Sure, it is a Proven System!
When you buy a franchise, you’re buying a business model and support. If a franchise doesn’t come with systems that work, you have a problem. This includes everything from payroll and marketing, to training and up-sells.
- Examine Earnings Potentials
It’s almost impossible to evaluate profitability in a franchise because factors like location can affect the numbers. Get comprehensive financials from other franchises; look at how the successful ones became profitable.
- Training and Coaching are Critical!
One crucial factor to consider when evaluating an opportunity is if the franchisor offers a well-thought-out, proven, structured training program. A great franchise organization knows that each of their franchisee’s success hinges on education and support.
- Get Exclusivity in Terms of Territory
After the strength of the brand, getting an exclusive territory is essential. If you can’t, for whatever reason, it makes it much more challenging to build your brand and defend your market.
- Speak with Franchisees
Speaking and learning from those that have spent the dollars and cents to buy the franchise and the ongoing fees and costs to run the business will honestly be the barometer to tell you how strong the system is. You can not begin to know whether you have a match or not until you validate with existing owners and hear from the horse’s mouth what a true “day in the life” looks like until you spend some time discussing various topics with these folks.
A small business franchise can be a great way to own your own business. Understanding your personal goals, strengths, and budget, and knowing what to look for when evaluating a franchise can help you make the right choice for you.