One of the universal truths about entrepreneurship is that it is difficult. Creating a business involves a lot of time, capital, connections, pivoting and a bit of luck. For some people who want to do something on their own but don’t necessarily want to start from “Square One,” franchising can be a great option.
While it is less creative, the benefits of franchise ownership include a proven market concept, assistance on site locations, marketing, purchasing, build-out (if a physical unit) and much more. Getting to start at “Square Three” can improve the odds of success, although it does curtail part of the upside. That tradeoff can be well worth it, depending on your objectives.
“The Franchise King,” Joel Libava, who teaches individuals how to make smart, fact-based decisions on buying a franchise and is the author of Become A Franchise Owner. Here are his top recommendations of what you need to know and do before going into the franchise evaluation process.
1. Know Yourself. Not everyone was cut out for entrepreneurship and the same can be said for franchising. Libava says that you need to make sure you are the right type of person to own a franchise.
For example,” says Libava, “ask yourself, ‘Am I a rule follower?’ If so, franchise business ownership is worth a look. But, if you’d rather be the person who makes the rules, and/or likes to break them, owning a franchise will turn out to be a miserable experience for you, as the franchise business model is very rigid. If you become a franchisee, you’ll be expected to follow everything to the letter. Remember, when you buy a franchise you’re buying a business system. One that needs to be followed for it to work.”
Libava also created a free quiz to help you assess if you are a good fit for franchise ownership, which you can take here.
2. Educate Yourself on the Business Model. Libava says that is easy to think that because it’s a franchise, all you need to do is follow a plan and then the money will come pouring in. It is never that easy. Libava recommends you gain a complete understanding of how the franchise business you’re interested in works.
“Some of that information will come from the conversations you’ll have with the franchise development representative,” says Libava. “But, to get to the heart of the matter, you’ll need to talk with franchisees. After all, they’re the ones who are living and breathing the business you’re interested in buying. Here are a few questions to ask them:
1. Can you describe your typical day for me, from beginning to end?
2. What does the franchisor provide to help you operate your business efficiently and profitably?
3. Can you name a few things you feel the franchisor could be doing a better job with?
4. What is your favorite part of the business and what do you dislike the most?
5. What do I need to know- that you wish you knew before you became a franchisee?”
This approach will make sure that you are fully educated about the responsibility you are going to take on.
3. Understand Your Finances. The reality is that it takes money to make money. Before you can be considered to purchase a franchise, and in order for it to be successful, you need to be acquainted with your personal financials. You need to set up a budget for your franchise business investment. You also need to determine how much liquid capital you have to work with, as you’ll be using a portion for the total franchise investment. You can calculate your net worth using this free tool.
4. Onboard Your Loved Ones. This is often an area that is underestimated by entrepreneurs, but Libava emphasizes that “your family needs to know your plans, including how much money you’re thinking of investing, how fast you think you’ll be able to make it back, how many hours you’ll have to put in and other key items that can affect those close to you. The bottom line is you need them to be fully on board. Because if they’re not, your chance of success will be severely diminished.”
5. Be Willing to Spend Money. Even evaluating a franchise opportunity is not for the stingy. “If you find what you feel is a good franchise opportunity, you’ll need to invest in, at a minimum: travel to franchise headquarters for an in-person visit, (ii) an accountant who’s familiar with small businesses, preferably franchise businesses and (iii) the services of a franchise attorney,” Libava counsels. This money is spent to make sure your ultimate investment is properly allocated and you understand what you are getting into.
6. Have the Courage to Pull the Trigger. “Looking at franchise opportunities is one thing. Determining which one to buy, and then actually making the purchase, is a different story,” Libava says. “And, it takes time.” The process can be a grueling one. He notes the process of finding and researching franchise opportunities usually takes three to four months. Make sure you’re ready to invest the time needed and can make the commitment at the end of the process, so that you don’t waste time and money.
7. Understand That Franchise Ownership isn’t Bulletproof. As with any entrepreneurial endeavor, there are no guarantees. You should have a positive outlook, but be realistic that life and luck sometimes get in the way. “While you can’t guarantee your success, you can improve your odds by doing your homework and having enough money to invest and give the business a chance to succeed” Libava says. “It’s often worth it, because being your own boss is a wonderful thing.”
To make your franchise hunt and execution successful, make a commitment up-front that if you find a franchise you feel you can be successful owning, you’ll invest in the research, take professional advice and ultimately, buy the business. Then, the fun of franchise ownership truly begins.
- Should You Buy a Franchise? The Pros and Cons.
- Learn more about franchise financing options from Bank of America.
About Carol Roth
Carol Roth is the creator of the Future File ® legacy planning system, “recovering” investment banker, billion-dollar dealmaker, investor, entrepreneur, national media personality and author of the New York Times bestselling book, The Entrepreneur Equation. She is a judge on the Mark Burnett-produced technology competition show, America’s Greatest Makers and TV host and contributor, including host of Microsoft’s Office Small Business Academy. She is also an advisor to companies ranging from startups to major multi-national corporations and has an action figure made in her own likeness.
Bank of America, N.A. engages with Carol Roth to provide informational materials for your discussion or review purposes only. Carol Roth is a registered trademark, used pursuant to license. The third parties within articles are used under license from Carol Roth. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.