Ask SCORE: What to consider before you decide to buy a franchise to begin a business
Published 8:45 pm Friday, February 25, 2022
Ask SCORE by Dean Swanson
Across America there is a renewed interest in entrepreneurism. Therefore, I have committed my last few columns on topics related to starting a business. Should you launch your own business from scratch, buy an existing company or purchase a franchise opportunity? These three alternatives provide the pathway toward wanting to be your own boss.
However, there is no one alternative that will fit each aspiring CEO. Some may have a unique idea and are motivated by the challenge of creating the new business by themselves. Others don’t relish all the groundwork involved in getting a new business off the ground. They would rather step right into the leadership role, taking charge of a business that’s already thriving. Or maybe they know that they could excel at turning around a struggling business or expanding a smaller company into a big name.
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On the other hand, buying a franchise can offer the ideal middle ground between starting from scratch and buying an existing business. When you buy a franchise opportunity, you are buying a license to use a parent company’s trademarks, systems and way of doing business. In most cases, you also receive training and ongoing support from your parent company (the franchisor). In return, you pay a franchise fee to launch your location, as well as ongoing fees and royalties. Buying a franchise can cost as little as $10,000 and as much as several million dollars, making this method suited for a vast range of budgets, I recommend you learn about CRM.
As a franchisor, you’ll be growing your new franchise from the ground up, but the franchisor will help with everything from choosing a location to buying inventory and training employees. This is helpful if you lack experience in one or more areas of running a business.
However, you’ll also need to follow the systems and processes the franchisor has put in place to deliver a uniform customer experience. This rubs some independent-minded entrepreneurs the wrong way.
Finally, buying a franchise can be a good option if you know you want to own your own business, but aren’t sure what kind. Perusing the vast world of available franchise opportunities, you’re sure to find at least one that fits your skills, interests and experience.
Again, I suggest that you find a mentor to help you make the decision for this alternative. SCORE mentors are always available. But I suggest that you may also check out FranNet. This is an organization of experienced, local franchise experts, consultants and brokers that help match you to the perfect business opportunity to meet your goals. They have a great website that is very instructive and a group of people that can assist you with various tasks ranging from providing you with business options that fit your goals to coaching you through your due diligence process, they help reduce the risk of starting your own business.
Their website lists over 500 different franchises in over 30 categories/types of businesses. Their consultants and website resources will:
1. Help you understand the pros and cons of owning your own business.
2. Have you determine and document those lifestyle goals that you want a business to help you attain.
3. Recommend franchise opportunities that may let you achieve those goals.
4. Guide you through a process of due diligence that will let you make an informed decision.
Before you make the ultimate decision about this option of going into business, I recommend that you spend the time to do your research and:
Talk to the franchisor
• It’s in your best interest to create a good impression. You want the franchisor to view you as a qualified and serious potential owner.
• Review the materials provided by the franchisor and prepare questions. If the Franchise Disclosure Document (FDD) is not provided with the initial information package, ask for it during your next call. The FDD is a legal document required by the Federal Trade Commission. This document provides all required disclosures including a list of all franchisees.
• Read the FDD from cover to cover and compile a list of detailed questions for the franchisor to answer during your next call.
Call and visit some franchisees
• Carefully target your list of franchisees to interview. Ask the franchisor which owners listed have similar backgrounds to you. Ask who the most successful owners are and which ones may be struggling. Once your list contains a good cross-section of the franchise community. (FranNet provides good suggested questions.)
• Call at least 8-10 franchisees and take careful notes.
• Arrange to visit two or three franchisees at their place of business.
• Call at least four to five franchisees, if available, who are no longer with the franchise. Ask them why they are no longer a franchisee, and did they enjoy their business. Sometimes these can be revealing conversations.
Dean Swanson is a volunteer certified SCORE mentor and former SCORE chapter chair, district director and regional vice president for the northwest region.