The potential rewards are tempting. But, as you probably guessed, there's a flip side: the risks, the uncertainties, and the big question — are you really cut out to be a franchise owner?
Let's get real. Here are ten burning questions you must address before signing up for a franchise business.
1. Can You See the Big Picture?
A clear vision goes beyond money. Just like in any other business, vision is the cornerstone of a franchise.
Your vision sets the direction for your franchise journey and drives you to achieve your goals. A clear vision also helps you make strategic decisions and overcome obstacles.
Before dropping cash on a franchise, be ready to consider these big questions.
- What are your long-term objectives?
- How does owning a franchise fit into your career path?
- What do you want to achieve through your franchise?
- How does this franchise align with your personal values and lifestyle?
- What kind of work-life balance do you envision?
- What impact do you want to make in your community through your franchise?
- How does this franchise opportunity help you develop personally and professionally?
- Do you want to eventually own multiple franchise units or territories?
- What legacy do you want to leave through your business?
Thinking through these questions allows you to formulate a robust vision aligning your personal and professional aspirations with practical business considerations. A good vision will also enhance your personal fulfillment by ensuring your franchise fits with your values and lifestyle.
2. What Industry Sparks Your Interest?
Once you have a clear vision, you can identify the industry that aligns with your interests.
In 2021, the global franchise industry was worth $1.5 trillion and is expected to grow to $2.5 trillion by 2028. Among the 780,000 franchise businesses in the United States, the top industries are:
- Fast food: 220,000 franchises
- Retail: 180,000 franchises
- Business services: 100,000 franchises
- Automotive: 70,000 franchises
- Education: 60,000 franchises
- Healthcare: 50,000 franchises
- Lodging: 40,000 franchises
- Construction: 30,000 franchises
- Other: 100,000 franchises
You don’t have to be in love with the industry you choose. A match is mostly about how well you can apply your professional skills to the business at hand. Still, some personal interest definitely helps.
3. Should You Hire a Franchise Consultant?
After carving out a vision and aligning an industry that piques your interest, it's time to contemplate whether you need a franchise consultant. This decision can be a game-changer, speeding up the process and pairing you with a franchise that resonates with your vision and aspirations.
A good franchise consultant can save you precious time. Picture a seasoned guide who's traveled the franchising path countless times. A consultant can assess your readiness for franchise ownership, identify proven brands, introduce you to current franchisees, explain realistic expectations, analyze various brands, clarify costs, and keep you motivated throughout your journey.
For those intent on starting a franchise, a consultant makes the difference between a well-informed decision and a shot in the dark.
Others who opt not to work with a consultant end up confused about next steps. Then they give up during the long franchising process, sacrificing what could have been a lucrative new source of income.
Do your due diligence before picking a franchise consultant. Ask if they have any actual franchise experience. If they have, ask what franchises they have run, and what their experience was as a franchisee. Check on their fees, commissions, and the scope of their services. Finally, listen to your gut - choose the consultant who gives you a sense of comfort and trust.
4. Do You Have the Dough?
Franchises come with various price tags. Your task is to match your financial capacity with the right opportunity, ensuring you're not stretching your resources too thin.
The franchise fee, usually around $30k, is the tip of the iceberg. The total initial investment can go to $150k-400k, with bricks and mortar businesses on the high end. Franchise agreements are not usually negotiable, except on territory location. So, it's a significant outlay.
But here's where things can get murkier, where seasoned financial wisdom really comes into play. The initial investment is one thing, but what about the ongoing costs? Payroll, inventory, insurance, marketing, location upkeep — these are constant, relentless drains on your resources. And it's not just about affording them now; it's about ensuring you can sustain them long-term.
Look for hidden costs that could sneak up on you. Maybe it's a percentage of revenue that the franchisor expects for advertising. Maybe it's a stipulation in the contract requiring you to refurbish your franchise unit every few years. Or perhaps there are technology fees for using the franchisor's proprietary software. These details aren't always apparent, but they'll impact your bottom line.
5. How Will You Pay the Piper?
Next, it's time to plan your financing strategy. How will you fund your franchise venture?
Many of my franchise candidates are funding their businesses with HELOCs (home equity line of credit), ROBS (rollovers as business start-ups), or borrowing from their stock portfolio. Other options include cash, internal franchise loans, SBA loans, and traditional bank loans.
Your strategy will depend on your current financial situation, creditworthiness, and the cost of the franchise. It's crucial to establish this in advance to avoid hiccups down the line.
The early days of your franchise may not allow you to draw a regular salary. To prepare, make sure you build a financial safety net. Assess your savings, consider a side hustle, or discuss financial strategies with a partner to ensure you can weather this initial period without undue stress.
6. Are You Prepared for Long Hours and Hard Work?
Starting a franchise requires a time commitment. If you hire a manager from the beginning, you’re looking at 15-25 hours a week. If you manage your location yourself, plan on 40-50 hours a week. Most of my candidates invest with the plan of hiring a manager from the get go so they can still keep their day jobs.
The first months are crucial to lay a solid foundation for your business. Once you hire a competent manager and train them to oversee operations, your hands-on role may lessen, but it's important to remain involved.
7. Are You Ready to Continue Growing Your Business?
After the initial couple years of running your franchise, typicallfy your work involvement will go down to about 10 hours a week.
Managing your manager is not about micro-managing their day-to-day activities, but ensuring they have the support, resources, and guidance to run the franchise efficiently. Your role morphs into a strategic oversight position. Weekly or monthly check-ins are crucial. These sessions provide an opportunity to review performance metrics, discuss challenges, strategize improvements, and ensure alignment with your overall business objectives.
In terms of ongoing maintenance, beyond the regular financial and operational oversight, franchise owners need to ensure compliance with the franchisor's standards and regulations. This might include periodic site visits to confirm adherence to brand guidelines, cleanliness, and customer service standards. Additionally, you need to maintain open lines of communication with the franchisor. This may involve attending franchise-wide meetings or training, or just listening for updates.
8. Do You Enjoy Leadership?
As an owner, it's also your responsibility to nurture a positive work culture. Engaging with staff beyond your manager helps create a team environment that can drive the success of your franchise. A periodic chat with staff, an occasional surprise visit, or a team-building activity can work wonders in boosting morale.
9. Do You Have the Personal Traits and Past Experience to be Successful?
Reflect on your ability to self-motivate and stay disciplined. These traits will be your anchors, helping you navigate the challenges of franchise ownership.
Any leadership or entrepreneurial experience you possess can significantly smooth your path. These skills will aid you in making strategic decisions and inspiring your team, even if you decide to hire a manager for day-to-day operations.
As a franchisee, you'll bring your life skills, people skills and business skills to work. If you have been successful at building teams, if you have been successful at managing and mentoring people effectively, if you have been successful at achieving personal and team goals, then you have the skills necessary.
10. How Well Do You Handle Stress?
It’s no secret that entrepreneurs experience stress more frequently than other workers. Even with a franchisor's support, you'll face challenges that require stress management.
Stressors vary, from managing the bottom line and keeping up with competition to maintaining brand standards and customer satisfaction.
You need to stay level-headed and calm. Developing strategies for stress management will help.
These are the strategies that have consistently delivered for me, and they’re backed up by science.
- Maintain a Healthy Lifestyle: You should aim for 3 hours a week of aerobic activity, a balanced diet, and 8 hours of daily sleep.
- Nurture Strong Social Networks: You're not in this alone. Connecting regularly with fellow franchise owners, participating in community events, or joining entrepreneurial groups can provide social support, which alleviate stress.
- Practice Mindfulness: Mindfulness can help you deal with the uncertainties of running a business. You can use meditation, deep breathing, or apps like Headspace or Calm.
11. Are You Resilient Enough?
Resilience involves mental toughness, emotional intelligence, strategic thinking, and proactive prevention.
- Mental toughness is the ability to manage thoughts and emotions effectively during challenging situations, maintaining focus and confidence. Techniques like mental imagery, self-talk, and goal setting can help in strengthening mental toughness.
- Emotional intelligence is crucial in dealing with setbacks. This skill is about recognizing and understanding your emotions, and using this awareness to manage behavior and relationships. This is particularly important in a franchisee-franchisor relationship, where open and empathetic communication is key.
- Strategic thinking involves the ability to assess business strategies, understand the shifting market trends, and adapt your franchise operations accordingly.
- Proactive prevention involves scenario planning, risk assessment, and contingency planning. Can you foresee potential challenges and develop plans to mitigate them? Often overlooked, this aspect of resilience can save your franchisee from unexpected setbacks.
If you want to grow to multiple locations, I assure you, mastering all four of these aspects of resilience will be vital to your wellbeing and your business success.
12. Are You Comfortable with Guidance and Regulations?
Operating within a franchisor's established rules is a strategic approach to ensure brand consistency, customer satisfaction, and optimized operations across all franchise locations. Your comfort with these rules isn't just a matter of temperament, it's a business requirement.
At first glance, these regulations might seem restrictive, but look closer and you’ll see a strategic rationale. The franchisor you choose to work with has no doubt spent years developing the guidelines they gave you. They’ve gone through trial and error so that you can have tested processes to run a successful business.
Your franchise’s guidelines address an array of aspects: from store design and branding, to product offerings, pricing, and customer service protocols. Your willingness to follow these will enable you to benefit from the franchisor's accumulated knowledge and expertise.
That said, it's important to strike a balance between adherence and initiative. The franchisor provides the roadmap, but you navigate the journey. Your knowledge of your local market, your creativity, and your leadership skills are integral to running a successful business.
Understanding the franchisor's regulations also calls for due diligence. You’ll need to review the Franchise Disclosure Document (FDD) of the franchise you’re interested in, as it will disclose all of the franchise’s regulations. (Consulting with a franchise attorney will help here too.)
Remember, these rules aren't supposed to be a list of restrictions. They’re designed to be a blueprint for your success. Embrace them, adapt to them, and use them to your advantage.
13. Do You Love Making Things Better?
In business, stagnation is the enemy. The most successful franchise owners are those who continuously look for ways to improve. They seek feedback, learn from their mistakes, and constantly strive to enhance their service, operations, and customer relations.
The franchising world values innovation and adaptation. So, if you love making things better, you're already on the right track.
That said, your success as a franchisee is tied to how well you can adapt within a franchisor's proven system.
You should follow the franchise's systems with an open mind. While creativity is valuable, recognizing the wisdom in these established processes can reduce risks and accelerate your success.
Also, prepare to dive into the franchisee network, not just as a beneficiary but as a contributor. The support and guidance you can give and receive in this community are instrumental to your growth.
14. Do You Have the Support of Your Family?
Before buying a franchise, make sure your family understands and supports the demands this new endeavor may place on your collective lives. Their backing will be a source of strength in challenging times.
Finally, staying current with industry trends and market shifts will enable you to provide strategic guidance and make informed decisions. Whether you’re assessing local competition, identifying growth opportunities, or planning marketing strategies, your ongoing involvement will help your franchise succeed in the long term.
Conclusion
Starting a franchise is an exciting journey, but it's also full of challenges. I wrote these 10 points to help prepare you for what lies ahead.
There’s no sense getting into this if you can already tell that franchising isn’t for you.
I’ve always found that the more preparation I do, the easier everything becomes.
If you read this list, and you’re ready to continue, I’d love to meet with you and see if I can help you on your journey.Ever thought about stepping into the thrilling world of franchising?