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More people than ever are interested in starting a franchise business. The potential benefits seem clear, but the risks also seem high. Even more than risk and reward, starting a franchise requires a serious look in the mirror to decide if you really have the makeup to be an entrepreneur.
Here are seven questions you should ask yourself before starting a franchise business.
RELATED: 7 Things You Need to Know Before Becoming a Franchise Owner
1. Do I have a vision for the future?
To take action and start a franchise, you need to understand Why, not necessarily a widget. Do you have a future vision for your life that you are trying to achieve? Think of it like a destination, and think of a franchise like a car—a vehicle that will help you get to your destination.
A clear vision for the future should include your involvement in the business, your career and the lifestyle you envision. This will help you choose the right franchise model to fit your vision.
2. Do I have confidence, perseverance, determination and resilience?
Every business owner in America has had to deal with the effects of Covid-19. There will be unknown obstacles in the future when you start a franchise.
To move forward, you must overcome uncertainty with emotional commitment and the confidence to overcome obstacles. You also need to have the courage and resilience to get through difficult times. A franchise can help you get your business up and running faster than starting a business from scratch and will get you through any challenge with the best practices of a network of other franchisees.
3. Should I act alone or hire a franchise consultant?
Just like buying a home, you can certainly find franchise opportunities online. However, it’s a bustling environment with thousands of brands – and like everything else, some are good and some are bad. And no franchise brand shows their business model on their website, so you’re only drawing conclusions from the consumer’s point of view.
You can’t easily find new emerging brands online and you can spend a lot of time researching brands only to find out they don’t fit. A franchise consultant, like a good financial consultant, will reverse this process and start with you and your goals, help you set the criteria, and only then match you with the right franchise brands. They will then guide you through the investigation with education and resources.
Related: How to narrow down thousands of franchises to find the one that’s right for you
4. Do I have the capital to open a franchise?
You should carefully consider your financial options when opening a franchise. To understand the specific capital requirements for any particular franchise, you may refer to paragraph 7 of the Franchise Disclosure Document, which details the proposed initial investment. They are based on real franchises and tend to be very accurate. However, be sure to make up your own estimates as these positions can vary considerably between franchisees.
While there are always exceptions, investment ranges can generally be divided into three categories. These include self-employment or work-from-home models; scalable executive service models; and semi-passive or semi-passive models:
- Self-employed or work-from-home models with few or no employees that do not require real estate for clients typically range from $75,000 to $150,000 in total investment per area or unit.
- More scalable equipment-intensive service brands that do not require customer-facing real estate typically cost between $100,000 and $350,000 per territory or unit.
- Physical location based franchises require more real estate investment but tend to be more semi-permanent and can range from $250,000 to $1 million or more per unit.
5. How will I finance the franchise?
There are many options to help you finance your new franchise. If you have an old 401(k) or IRA, you can convert some of your retirement account balances into stock in your new business tax-free. Applicants also use personal loans, such as a home equity line of credit (HELOC) or a portfolio loan secured by securities, which have the lowest cost of debt and the easiest access to capital.
You can also get an SBA-guaranteed bank loan, which is a popular option. Many franchisors have pre-financed arrangements with preferred vendors. Whatever your choice of funding, it’s important to think ahead to make sure your business and personal needs are covered as you launch your business.
6. Which franchise industry is right for me?
Many of my candidates are looking for a business they are passionate about. Of course, you have to believe in your product or service, but it doesn’t have to be your hobby. It’s a business model that needs to fit. For example, I had a fitness franchise. Although I’m not a fitness freak, the business model worked and I was very pleased to see our clients make a difference in their health.
Conducting a deliberate process of studying business models that match your criteria and comparing them with the help of an experienced consultant is often the best way to find the right industry. By focusing on the business model and your role as a franchise owner, you will find that the industry can be a secondary consideration.
Related: Check out the fastest growing franchises in 2023
7. Do I believe in continuous improvement or “if something isn’t broken, don’t fix it?”
If you have a more reactive style, owning a franchise is most likely not for you. Owning a franchise requires you to continually look at the business with an eye for continuous improvement, making every process, such as sales, marketing, operations, or customer service, consistently better for your customers. Having a proactive approach versus a reactive approach is critical to success.
While there are many considerations to consider when starting a new business, it is essentially an emotional decision that starts with a little reflection on yourself. By asking yourself the hard questions, you will know if you are emotionally ready to take the next step.
If you’re not ready, consider what changes or milestones you need to achieve in your life so that you’re ready when the time comes. If you find yourself inspired and ready to move forward, find the resources you need to learn about franchising and commit to following the process. This will give you the confidence you need to succeed.