There are many paths to becoming a small business owner. Plenty of owners go the Do-it-yourself route, building a lifelong dream or back of the napkin idea into a successful company. This approach often requires a specific personality type, patience and unwavering passion. Others, however, prefer a more structured track with less risk and fewer surprises. For them, there's franchising.
Franchises are a vital part of national and local economies. According to the International Franchise Association, franchise output is projected to grow by $45 billion (a 5.4% increase) in 2015. Employment is up across multiple major franchise sectors (restaurants and food retail, auto and business services, to name a couple) indicating the growth potential franchise ownership has to offer.
Like any major business decision, choosing a franchise shouldn't be done on a whim. Research into specific brands and market trends, and an honest evaluation of your own finances, is essential to finding the right opportunity.
4 Key Questions to Answer During Your Franchise Search
An informed franchise buyer will become a successful franchise owner. Here are a few questions to consider as you vet different franchise opportunities.
- How much control will you have (and do you want)? Franchise owners enjoy the perks of being their own boss--to an extent. In most scenarios, franchises are legally obligated to uphold most (if not all) of the corporate brand's rules and processes. This can include anything from accounting workflow and hiring practices to marketing and customer service. If you're more of a free spirit who wants direct control and creative license over certain initiatives, consider that some franchise contracts may be more or less restrictive in the liberties you're permitted to take.
- What will your financial commitment be in the short and long term? Like owning your own small business, running a franchise unit requires a healthy upfront investment and ongoing funding. Potential franchisees first need an accurate read of their own assets and capital, given that many companies enforce a minimum financial requirement (e.g. net worth, liquid assets) during the application process.Armed with this information, you can embark on exhaustive research into the varied world of franchise costs. A smaller chain like Jersey Mike's Subs estimates that franchisees' initial investment ranges from around $214,000 to just over $640,000. The initial investment for a Taco Bell, however, can surpass $1.2 million. No matter what range you fall in, find out all of the specific fees you'll be responsible for over time, such as royalties, advertising fees, property leases and other startup expenses like inventory or equipment. Don't forget about financing support either--some corporate brands may offer it, or help franchisees secure it elsewhere.
- How mature is the brand's franchising program? Household consumer brands like McDonald's, 7-11 and Dunkin' Donuts have been in the franchising business for years. Smaller businesses and regional chains might still be in the early days of formalizing their franchise programs, and their long term success isn't always guaranteed This could be fine for serial business owners, but first-time franchisees may want a little more hand holding and lower risk, which bigger brands can provide. A robust franchise program will include not only general operations training and an introduction to the brand, but also primers on advertising, employee development and supply chain management.
- What does your local supply and demand look like? Unless you have prior experience in a certain industry, you may have little direction into what type of franchise to license. Before rolling the dice on a randomly selected brand, consider your geographic market and demographics. What competition exists in your area for other auto mechanics or sandwich shops? Does any one brand have multiple franchises in the area? Think about what local customers have a need for, whether that demand is ongoing and enduring or seasonal or a fad, and how those demands will change in the next few years.
Many brands market their franchises as "turn-key" opportunities, but selecting the right franchise to run isn't such a simple endeavor. Franchise hopefuls don't need to settle for the first option that comes along. By taking it slow--and asking the right questions--the perfect fit will eventually present itself.