You may have your mind set you’re ready to start a business, but you’re not entirely sure about where to go from there. Do you start your own business or become a part of a franchise? It’s not an easy decision. If you find yourself in that spot, here are 7 questions you need to ask yourself before getting started.
1) What does the competition look like?
One of the greatest barriers you’ve have to maintaining a healthy, successful franchise is your competition. Not only will you be worried about settling matters within your own industry, you’ll have to keep them down and outsmart them at every turn. They will take some of your anticipated profits and leave fighting a war you may not be ready to fight. Unless your franchise has a noticeable advantage, the best decision would be to walk away.
2) Will it be difficult to hire competent workers?
There are a lot of challenges that come with hiring workers you may not be aware of. A lot of franchises will require you to hire employees at a certain wage, typically $20,000-$30,000 per year. But where are you going to find those employees? If you live in a rural town, it may not be so difficult to find the necessary labor. A wealthier place with a higher than average salary may make that task more difficult. Can you still achieve a return on your investment if you’re paying higher wages to fit the location?
3) Does the franchise management have their stuff together?
It’s obvious that you don’t want to get involved in a franchise that doesn’t have a good management team. Have their key players been with the company a long time? Is the director a 22-year-old kid being employed for the first time right out of college? How much experience and success does the management have? These are all things to consider.
4) How long will it take me for me to break even?
When you invest in a franchise, there are a lot of up-front fees you must pay. There’s territory fees, training fees, taxes, start-up fees, advertising, security deposit on the lease, etc. You must be completely prepared, even for unforeseen expenses in order to stay afloat. Try to aim for having enough money saved up to carry you for 2-3 years. Any less than that is too risky.
5) Is the franchise growing and healthy?
Even the best companies with wide-reaching popularity can struggle and have down periods. It’s even possible that a particular franchise loses its luster and is on the beginning stages of a downward spiral. In any case, it’s a good idea to consider not just the franchise itself, but the health of the company as a whole. How is the turnover rate? What is the geographic distribution? Is that franchise model too outdated? These are all the questions you need to ask before investing.
6) How easy will I be able to get out of my contract?
If things start to go south and you no longer feel confident about your ability to continue to run the location, you may have an opportunity to get out of the contract. Maybe you did your best and it just didn’t work out. Or an illness keeps you from continuing. Either way, some franchisors will let you go sooner, based on a few conditions. For example: as long as you agree not to set up a competing business or agree to release them from liability.
7) How strong financially is the franchise?
The franchise is required to let you in on their financial statements, which will help you decide if they are strong enough to make franchising worth it. Obviously you’d want to work with a company that not just survives, but thrives and will partake in reinvesting in the support and training of their franchisees. And don’t just look at the reports, but ask an expert to look over them as well so you don’t miss a thing.
