Franchises are a tempting way to get into business ownership. Is this the right path for you? And if it is, how are you supposed to pick one out of the thousands of options?
For those completely unfamiliar with the idea, franchises are businesses that trade their name and operating methods to people in exchange for a royalty fee. McDonald’s is a franchise; as are Subway, UPS, Jamba Juice and many other chains, especially food outlets. Buying a franchise is buying a small business opportunity that has been refined and perfected—it can be less risky than starting a completely new organization on your own. When people see a Taco John’s, they know what they’re getting, and you’ll have a pack of loyal customers already. If you’re successful, the path to expansion is clear, too.
If you’ve decided opening a franchise is the right plan for you and your business aspirations, here are some questions to consider when picking one:
What is my budget?
Some franchises are more expensive than others. Like all business decisions, you first need to consider the risk you’re willing to take and the finances you have available. You don’t have to open up a huge hotel or a super-popular restaurant (think Wendy’s or Buffalo Wild Wings), which come with massive operating costs. You can start small, with a business that has a less hefty price tag.
Cleaning services like Buildingstars International Inc or Mint Condition Franchising can be opened for under $5,000. But don’t be fooled by an exceptionally low start-up cost without reading the fine print. That fine print will often include: after paying an initial lump sum, you’ll then have to pay royalty fees to the owner of the franchise in return for their support. Make sure the royalty fees and anything else you’ll be required to cover will fit into your budget, in addition to all standard operating costs.
Why am I starting a business?
Some entrepreneurs found businesses for the independence ownership can bring. With a franchise, you need to be comfortable going into business with a company. Read over the Franchisor Disclosure Document (FDD) carefully to see what support is offered from the franchise during your tenure, and then ask yourself some vital questions: will this franchise get me where I’m trying to go? Do I have the time and energy required for this endeavor? How many hours do I want to work each week? Each franchise will have very different standards, and it’s important to consider each option in terms of how it’s helping you achieve your own goals. Are you confident telling people that you own a fast-food franchise, or would you feel more confident bragging about your involvement in the tax industry? Selecting the right franchise for your lifestyle, your personality, and your financial goals can take time and self-reflection.
One thing to note: some franchises will provide valuable training. For instance, Hampton by Hilton offers two weeks of training at headquarters as well as continued meetings throughout your ownership to help ensure your success. So if your goal includes improving your business skills, a training-oriented franchise may be up your alley.
Have others found success with this franchise?
One of the best parts about owning a franchise is that others have gone before you—and succeeded. Reach out to the owners of your particular franchise around you, once you have it narrowed down. Do they like owning that franchise? What are some particularly challenging parts? Would they recommend it? Without getting too personal, are they seeing the profits they hoped to see? This can all be helpful determining factors when trying to make your decision.
While starting a franchise can seem like an out-of-the-box solution to small business ownership, you’ll have the greatest chance of real success if you ask the important questions and research the right answers before you make a decision to invest.