August 30th, 2017 - Franchises Under 10k
Let me paint a hypothetical (or perhaps very real) picture for you. You’re sick of your job. You hate clocking in at the office, doing the same thing every day, going home, and then repeating the cycle ad nauseam.
You desperately want to do something different. Someone mentions the possibility of owning a franchise. Wow, that sounds really cool, you think. Maybe this is the solution you’ve been looking for.
And it’s true: owning a franchise is really cool. It can be a great way to take your career in a new, powerful direction.
But you shouldn’t go into it blindly. Owning a franchise isn’t for everyone. And there are great franchises and terrible ones.
How can you know if you should purchase a franchise?
Ask these questions.
Do You Have The Right Personality For A Franchise?
Owning a franchise is perfect for the person who wants to be totally immersed in their work, thrives on a challenge and loves to pour themselves into a big, meaningful project. Yes, it takes a lot of work, and you have to deal with occasionally difficult employees, but it’s so rewarding. Granted, if you’re the kind of person who loves working in a bland cubicle, coming home and crashing on the couch, and then mindlessly watching a reality tv show, maybe you shouldn’t own a franchise. But if you’re a passionate person who loves to conquer new things, this is right up your alley.
Franchises are also perfect for the person who enjoys a routine and seeing the same thing done perfectly again and again. They’re a great fit for that man or woman who likes perfecting processes until they produce the same results every time. Franchises thrive on sameness and maintaining the same feel, quality, and standards across every location.
Many people find this limitation to be freeing. They only want to focus on the work, not trying to figure out every minute detail, such as what color scheme they should use.
Before you purchase a franchise, take some time to assess your personality. Are you the right fit for a franchise? The last thing you want to do is spend a lot of money only to find out that you aren’t cut out for the job.
Do You Thrive on Structure and Order?
If you purchase a franchise, you’re probably going to be involved in every aspect of the business. Keeping the books, finding new customers, maintaining equipment, dealing with grumpy customers, and every other aspect of running a company.
Remember, franchises are meant to be replicated, which means they can’t be overly complex. They need structure and order if they’re going to succeed. If you’re the kind of person who loves seeing a process put into place and structured perfectly, you’re going to love being a franchise owner.
Before you purchase a franchise, ask yourself, “Do I want to be involved in every aspect of running the business? Am I willing to get down and dirty and do whatever is required to run the business?”
Do You Want To Develop New Skills?
Owning a franchise will push you in ways you never dreamed. You’ll be forced to learn new, valuable skills that will have value in every area of your life. You’ll need to learn bookkeeping, customer relations, sales, and much more.
These are skills you can then take back into the workforce should you desire to return. And because you’ve acquired these new skills, you’ll be even more valuable to potential employers.
This is one of the amazing things about owning a franchise. It forces you outside your comfort zone, and yet that turns you into a much more experienced and valuable person.
Are You Ready To Be Fully Dedicated?
Owning a franchise is an all-in operation. In fact, almost every franchise agreement has a clause that requires you to devote almost all your working time to making the franchise a success.
Simply put, running a franchise requires dedication. To make it work, you really do have to be all in. But here’s the good news: when you love what you’re doing, it doesn’t usually feel like work.
Sure, there will be time constraints on other hobbies and areas of your life, but you’re making sacrifices in order to build something great. Something you and your family can be proud of. It’s a short term investment for a long term reward.
Are You Content Being In A Single Location
Remember, many franchises have territories. You cannot compete with other franchises. This may mean not advertising outside your territory, expanding your reach, or trying to acquire customers from other areas.
If you’re the aggressive type who has dreams of massive expansion, think carefully. You may be able to expand by buying other units within the same franchise, but other than that, your options are limited.
On the other hand, if you have a location you love and never want to leave, owning a franchise will be perfect.
Are You Okay Dealing With People?
Almost every business involves some measure of dealing with people. As we all know, many people can be obnoxious, rude, intolerant, mean spirited, spoiled, and on rare occasions, violent. This is simply part and parcel with the territory.
If you’re an extrovert who loves interacting with people all day, you may love the people aspect of owning a franchise. You may even get a kick out of helping solve sticky situations.
But if you’re a quiet introvert who is content sitting in a quiet office, the franchise life might create a lot of stress for you. You need somewhat thick skin to run a franchise, and if you’re the sensitive type, you may find yourself struggling.
Do You Have Enough Assets To Cover All The Costs?
A reputable franchise should provide you with a document telling you what to expect in terms of costs the first two years. If the franchise does not do this, make sure to ask for it.
Remember, there are going to be numerous costs that may not be covered in the franchise documentation, including:
- Legal fees
- Debt servicing fees
- Travel expenses during franchise training
- Liability insurance for the property
- Retirement plans for employees
- Life insurance
- Rent, security, and utility costs
- And more…
Doug Bend, a lawyer who helps who considering purchasing franchises, says this:
I review many franchise agreements. There are often hidden fees in addition to the royalty payments, such as required marketing fees or training. Be sure you know the true cost of being a franchisee to make sure the franchise opportunity is the best one for you and your family.
Spend time studying the field to determine what potential unexpected costs you may encounter along the way.
Thankfully, you don’t have to be a millionaire to purchase a franchise. There are hundreds of cheap franchises available, including many franchises for under $10k.
Is The Franchise A Good Fit For Your Location?
The simple reality is your franchise needs to fit your location. A pizza place works great in a college town. An organic food store is a perfect fit for a more affluent city. If you work in a town that gets a lot of rain, a carpet cleaning business could be gangbusters. You just need to be sure that your business fits your location.
Before you buy your franchise, research the demographics of your location, including:
- Average income
- Gender split
- Age range
- Purchasing habits
- And more...
Don’t go in blind, assuming you can make it work. Study the available information.
Does The Franchise Have A Record Of Success?
These days, it’s not uncommon for a company to begin franchising after opening just a few stores. This means they probably don’t have a proven track record across numerous locations and populations.
While this doesn’t necessarily mean you shouldn’t buy the franchise, it does require you to do a bit more research to determine if the franchise will be a success.
Additionally, you’ll want to determine how many closings there have been over the past decade, as well as why those stores closed. Contrary to popular opinion, franchises do fail. Just because it’s a well-known business doesn’t mean it will work in every location.
Rosy glasses are unhelpful when purchasing a franchise. The best strategy is to ask hard question, examine hard data, and be willing to make hard decisions.
Susan Adams, who writes for Forbes, says this:
Take advantage of sites like Sean Kelly’s Unhappy Franchisee and search for negatives about the franchise you’re considering. For example, Kelly has run a series of exposés on NY Bagel Café, documenting the stores’ high closure rate. (A consultant to the chain, Richard Taggert, disputes Kelly’s reports and says the company has had only had a handful of closings in the last decade.) Blue Mau Mau also reports on the franchise industry.
Owning a franchise can be an amazing experience. It can transform your life in so many positive ways. But it’s also got its fair share of challenges. You need to be informed of what you’re getting into before you purchase a franchise.
By asking the questions above, you can gain a deep understanding of a potential franchise, which will help you avoid some of the worst pitfalls.