Being a franchisee comes with numerous advantages. The biggest? You’ll enjoy many benefits of entrepreneurship without the added stress of figuring everything out on your own. As the International Franchise Association (the trade association for the franchise industry) notes, “Owning a franchise allows you to go into business for yourself, but not by yourself.”
As a franchisee, your small business will enjoy instant brand recognition and a built-in customer base. Plus, you’ll get initial training and ongoing support from the franchisor. You’ll also have a network of other franchisees with whom you can share problems and seek solutions. These are all big advantages of a franchise business.
Of course, you may have a few questions as you’re considering joining the thousands of other entrepreneurs who’ve chosen the franchise path to business ownership. Let’s look at four potential obstacles in the form of startup questions so you can determine if owning a franchise business is the right opportunity for you.
Question #1: Do you have what it takes to be a franchisee?
When you buy a franchise, you’re investing in an already successful, proven business system. But it only works if you follow the franchisor’s policies and procedures.
If you’re not particularly collaborative or have trouble letting go of control, franchising might not be the right fit for you. Depending on the franchise you buy, you may have little creative input, limiting your ability to implement your ideas.
However, it’s important to note that many franchisors welcome franchisee input. When doing your due diligence, call several franchisees of the system you’re exploring and ask them about their experiences with the franchisor and how open the parent company is to franchisee input. Some allow franchises to decorate their franchise units to match regional themes or add new menu items. For instance, franchisees created the Egg McMuffin, Filet O-Fish and Big Mac for McDonald’s, Dairy Queen’s Blizzard, and the bacon cheeseburger for A&W. Make sure you’re comfortable with the franchisor’s level of control before you invest in that system.
Working within an established framework and following guidelines aren’t the only skills typically required for a franchisee. According to a Forbes article, people with independent thinking, strong determination and multitasking skills, including former military service men and women, are well-equipped to own a franchise. If you have these skills, a franchise business may be a good fit for you.
Question #2: Can you afford to buy a franchise business?
Buying a franchise can cost hundreds of thousands of dollars depending on the franchise business opportunity and industry you’re considering. Most franchisors charge an initial franchise fee and collect ongoing royalties (a percentage of your sales). Plus, you’ll need to spend money on typical business startup expenses like rent, equipment, employees, marketing and other costs.
As you would do if you were starting a non-franchise business, create a business plan and determine how much you’ll need to invest. Once you know your budget, you can search for a franchise opportunity that you can afford. The good news is that you can explore many low-cost franchise opportunities by starting with a keyword search in Google or Bing. If startup funds are a concern, look for a franchisor that offers home-based franchise opportunities, which may be less expensive to invest in and operate.
Also, investigate other financing options, including:
- Franchisors. Some franchisors offer direct financing to new franchisees, while others have relationships with lenders that often make loans to their franchisees.
- Banks. Getting a bank loan will depend on your credit history and the financial standing of the franchise system you’re buying into.
- Small Business Administration (SBA). The SBA doesn’t directly loan money, but they have relationships with banks that can provide small business loans. Again, you’re more likely to get approved for a loan if the franchisor you’re considering is successful and financially sound. Check out the SBA’s Lender Match to find possible lenders.
Question #3: What about the competition?
Market saturation and competition within the franchise network can create hurdles for franchisees. Market share can sometimes be difficult to capture in areas with a high concentration of the same franchise brand, leading to intense competition among franchisees. In that case, you’ll have to find innovative ways to differentiate your franchise unit, which likely means you’ll need to invest heavily in marketing.
Because every franchise has definitions regarding the size of the territories it sells, you should ask the franchisor about their territories and ask current franchisees if they’ve experienced any issues regarding territories or competition. Be sure to do this before you commit to the franchisor.
In addition, before you sign a contract, the franchise must give you a Franchise Disclosure Document (FDD). This legal document provides key information about the franchisor, the franchise system, and the franchise opportunity. Item 12 in the FDD specifically addresses information about the franchisor’s territories.
Question #4: Will you be a small fish in a big pond?
If you’re considering a franchise system with hundreds of franchisees, you may feel that you’ll just get lost in the system. Fortunately, most larger franchisors have planned for that situation and have staff who keep in touch with franchisees. Depending on the size of the system, you may be working closely with a district or regional director or manager. Be sure to communicate with this person and the franchisor regularly. Make it a habit to participate in meetings and forums to discuss concerns and share insights with corporate management and the other franchisees.
Do Your Research on Franchise Business Opportunities
As you search for the right franchise for you, conduct thorough research on each potential business you’re considering. Understand the financial commitments you’ll have to make, the type and level of support the franchisor provides and the competitive landscape. Owning a franchise has advantages and disadvantages; ensure they adhere to your personal, business and entrepreneurial needs.
When researching franchisors, speak with current franchisees of the system you’re interested in. Ask about their experiences with the company and whether they’d invest in the system again knowing what they know now.
Becoming a successful franchisee requires dedication, resilience and a willingness to learn and adapt. But there’s a benefit that comes with being a franchisee. It’s often less risky than starting an independent business because you’re investing in an established, successful business model with brand name recognition built by millions or billions of franchisor marketing dollars.
By thinking about potential obstacles and proactively seeking the answers, you can help position yourself for long-term success in the world of franchising.
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