Everyone wants success in life, and that’s why confident people will quit their day jobs and get into business while less confident ones hold on to their ‘’dear’’ jobs, but hope that things will turn in favour of them someday. The decision of becoming an employer as opposed to a servant or employee is a very critical one, and that’s because it’s often filled by uncertainties.
But even after deciding to go into business, many people still struggle with the question of whether to become a franchisee or not to become one. It’s something that will haunt them for as long as they’ve not made up their mind on which way to go. You see, when you plan to launch a business, you are never sure of what the outcome might be, despite carrying out research on the area of your expertise.
That’s because some people still fail in business after they’ve conducted a thorough market research on the area they want to specialise in. It’s something we’d call luck, failure to do a few things right, or a combination of all. In fact, research now says that more than 90% of start-ups fail within two years of running their businesses. This is not to discourage you, but facts must be stated boldly.
With that, it becomes very difficult for some people to go into business, and choose whether or not they want to become franchisees. Careful analysis shows that there’s more for you when you decide to become a franchisee as opposed to when you decide to start solo.
In fact, the franchising industry consistently reminds us that being a franchisee is safe and potentially profitable for anyone who ventures into it. That’s the reason why some people, despite having all the resources for starting and sustaining their businesses decide to go the franchisee way.
When it comes to franchising, there are questions to ask
Well, there’s no substitute for doing your homework. That’s where real learning happens to enthusiastic students, and the same is true when it comes to franchising. There are many questions you must seek answers to before acquiring a franchise or becoming a franchisee. To make your homework simple, we’ve rounded every little detail you need to know about this business opportunity.
1. What’s the level of your risk tolerance?
Franchising has been considered the greatest business model that man ever invented. That’s because it has allowed hundreds or thousands of people across the world to become business owners.
The idea is very simple, someone comes up with a product or service he wants to sell, then starts their business. Over time, they think it’s time to replicate their business. They simply don’t want to use all their resources to grow or expand their businesses – for reasons we’re not quite sure of.
So the search for one or two investors begins. Then it turns out that getting some good investors is really a smart choice. But in this case, the investors are going to do more than just buy the business. They are going to run it too. As a franchisee, that’s right because you’re going to share resources with the franchisor – the person who came up with the idea to start the business. So it appears like a win-win situation.
However, as a franchisee, you must decide your risk tolerance. You see, investing in another person’s business is a very risky affair, and there’s no way to ascertain whether or not you’ll succeed. The good thing is, you can certainly mitigate the risks. Ask yourself; are you ready to risk your money in a business venture?
One of the things you can do to help you decide whether or not you are ready to write a cheque to the franchising company is to evaluate your past financial decisions. How were you able to handle the risky part of things? Did you analyse things for weeks or even months? Did you do some research before arriving at the decision?
Bottom line is this; make sure you will handle the risk you’ll be facing ahead?
2. Can you handle the rules?
Rules are everywhere these days, and they used to be even before we were born. This does not exclude franchises. In fact, these businesses have their own rules guiding their products, services or brands.
Now, if you happen to identify a franchising opportunity, what are the rules there? Are they comfortable for you?
Bottom line is this; before you become a part of the franchise business, understand the rules of the business. If you feel you are comfortable with them. You can go ahead and obtain your share. If not, then it’s not worth writing a cheque to the franchise company. You’ll be frustrated for no reason.
3. Your financial muscles
Do you know where you currently stand financially? If No is your answer, then you will waste your time getting excited and learning about franchise opportunities that may not even match what you have in your bank account.
To know whether or not you are safe financially, you must start by calculating your net worth. In your statement, add up all your assets and liabilities and then find the difference. That’s what you are worth of. This information is critical because most franchisors need it during the application process to become a franchisee in their business. So unless you’re ready to prove yourself, I recommend that you don’t go into franchising.
4. How much money will you make once you become a franchisee?
Even though franchising has massive potential for business opportunities, the question of how much money can you make is very critical. Once you determine the average investment for start up, you’ll need to figure out the average unit sale, the all expense category, gross margin as well as net margin of the business in questions, plus how long does it take a new unit to start generating money for the business owner.
Though most people never want to discuss their finances with people they don’t know well, the business you are eying will be more than willing to discuss it with you as long as you’ve established some kind of contact and support with them. Realise that it’s your money, so you have all the right to discuss every single item that touches on your money.
5. How are you going to begin your search?
Once you feel that you are comfortable with where you lie financially, and that you have what it takes to become a franchisee, it’s time to begin the search for the ideal business you want to partner with.
Most people begin by searching online. But what they don’t know is that spending countless hours searching for what’s what could just be a total waste of time.
What they don’t always know is that one has to define themselves in relation to their area of expertise. In relation to that, grab a legal pad and jot down your professional skills. Put down some traits that define who you are. Are you highly competitive? Are you outgoing? Are you a big-picture person?
Now that you’ve listed down some dominant traits that define you, it’s time you begin your search for someone who can go well with the skills mentioned above. Just turn to your favourite search engine and types the words ‘’franchise for sale’’ or ‘’franchising opportunities’’. Now it’s time to start digging in. You’ll likely come up with a handful of opportunities that seem relevant to your needs.
But don’t just choose anyone. Instead, pick those who fit what you wrote down. Don’t forget about the minimum net worth requirement.
Why would you become a franchisee anyway?
Sometimes we do things and then something prompts us, out of nowhere, to ask ourselves whether it is worth the effort. But as far as the industry is concerned, franchising has a number of benefits that makes it attractive compared to going into business as a newbie.
Branding
Franchising is obviously worth it because of the branding factor. The moment you become a franchisee, you’ll find that the brand has already been established in the market. You don’t have to struggle, starting from scratch because the parent business did it for you. So it’s about exposing your business to opportunities to let it grow. There’s almost a guarantee that your project will pick up.
Exclusive rights
Even the most successful business people fear competition, though they won’t accept it. They’ve always coated it by saying ‘’competition is healthy’’. How can it be healthy when all the customers are buying from your rivals and not you? But when you franchise, you’ll have exclusive rights to sell your products or services within the area. This minimises the competition you’re likely to face, enabling you to grow.
Financing
Even though franchising may take up all your resources because there’s always an initial deposit that new stakeholders must make, it’s a good opportunity in that obtaining financing is always easy.
You see, if you’re using the trademark of a well-established company, there are chances that you’ll effortlessly obtain loans from banks and other financial institutions as opposed to starting your own business.
Banks always want to be sure when lending out money to their clients. If you present a business plan to them seeking a loan, they’ll only give it out when there’s solid proof that your business will generate and pay back the loan in real time.
Franchising is almost a guarantee to obtain money from financial institutions since you are working with a proven business model, not something that’s just starting out.
Establishing relations
Being part of an established brand means a few things. You see, it takes time for a start up to establish a reliable contact list with people who buy their products or services. As a start up, you’ll spend a good amount of money trying to market your business for potential customers to know about it. It just takes time, effort and money to get to where you want to be. But since you’re riding on the success of an established entity, you can avoid all this nightmare. That’s because their customers become your customers. You simply join the system as it is and everything works well.
On going help and support
Once you acquire a brand, and may be your franchisor decides to leave, they won’t just say goodbye and let you run the business alone. Instead, they’ll help you with the fundamentals of running the business you’ve just acquired. Most of them will help you find and retain customers. They’ll also help you set up accounting and stock control systems. That’s what most franchisors do.
A few of them will also come in to help the business take off completely, now that it has changed hands. If you’re lucky, you might get access to initial start up cost such as vehicles or equipments, as well as organizing marketing and advertising campaigns. However, this kind of support also varies across franchisors. Not all of them will provide you with this support. So when looking for an ideal business to team up with or acquire, you need to consider all this before investing your hard earned money.
Trademark and patent
The best thing about franchises is that they come with no additional cost for running them. At the same time, there’s no threat of someone coming from nowhere and taking up your name. Remember that the brand has already been patented, so rest assured that everything will be as smooth as it can get.
Here are a few cons for going the franchisee way
If you really feel that going the franchisee way is best for you, then there’s no reason why you’d want to hesitate. On the other hand, if you have what it takes but you still feel that you aren’t sure, you might want to consider the cons of franchising. Probably after weighing them carefully, it will help you make a good business decision.
You do things the franchisor’s way
As mentioned earlier, there are rules guiding the operations of a company or business, and you must adhere to them. Basically, you can’t do things your own way. So you might find it a little bit restrictive.
You lack full control of your business’ decision
Your franchising project may pick up very well, but your franchisor might make some business decisions that hurt the whole business. So when the boat is sinking, you’ll also sink into the water. That’s where going solo, while starting from scratch, has a fair advantage compared to becoming a franchisee.
Bottom line
The question of becoming a franchisee or not should not be a difficult one. Identify the strengths and weaknesses first, then find out what it takes to venture into the opportunity, then decide. Also, don’t forget to follow your instincts. Your instincts are always right whenever you’re venturing into an unfamiliar business territory. So roll up your sleeves and get ready for work.
