What Questions Should I Ask Myself Before Buying a Franchise?

 

WHAT QUESTIONS SHOULD I ASK MYSELF BEFORE BUYING A FRANCHISE? 

There are three main questions you should ask yourself?  

  1. Do I have what it takes to start my own business/be an entrepreneur?  
  2. Do I have what it takes to be a franchsiee?  
  3. Do I have all the answers I need about the franchise I am considering buying?  

DO I HAVE WHAT IT TAKES TO START MY OWN BUSINESS/BE AN ENTREPRENEUR?  

So you want to be an entrepreneur?  You're not alone! Consider these statistics:  

  • 55% of all Americans want to be their own boss.   
  • 37% of all households are involved in small business.   
  • 70% of all high school students want to start a business.   
  • 1 out of every 25 adults is currently starting a business.   
  • 5 million people started a business in 1995.   
  • by 2000, there will be 200 million home-based businesses.   

An entrepreneur is defined as:  

  • "One who pursues opportunity beyond the resources currently controlled."  
  • "A person who sees an opportunity and creates an organization to pursue it."  
  • "A dreamer who attempt to turn an idea into a profitable reality."  
  • "Anyone who assumes the risk and responsibility for starting and managing a business."  
  • "Anyone who takes the risk of starting a business for the purpose of making a profit."  

Entrepreneurs have a different way of looking at life: 

  

Opportunity   INSTEAD OF  Security 
Results  INSTEAD OF  Routine 
Profit  INSTEAD OF  A Paycheck 
Trying New Ideas  INSTEAD OF  Avoiding Mistakes 
Vision  INSTEAD OF  Short-Term Gain 

 

The advantages of being an entrepreneur:  

  • freedom and independence 
  • control over a major aspect of your life 
  • an outlet for creativity 
  • excitement 
  • satisfaction and sense of achievement 
  • self-esteem 
  • status and recognition 
  • flexibility 
  • job security-you cannot be fired or laid off 
  • unlimited income potential 
  • growth of initial monetary investment 

The disadvantages of being an entrepreneur:  

  • risk 
  • responsibility and pressure 
  • fear of failure 
  • obstacles and frustration 
  • loneliness 
  • more work 
  • longer hours 
  • less time or energy to spend with friends and family 
  • less financial security 
  • fewer job benefits 
  • risk of losing investment 
  • income fluctuation  
  • you are responsible for your own portion of taxes and FICA 

Entrepreneurial self-assessment: Starting a successful business takes a tremendous amount of energy and certain personal characteristics.  Read each of the characteristics below and circle the number that most accurately describes your entrepreneurial potential on a  scale of one to ten.  (1 is low, 10 is high)  

Your score is an indication of the extent to which you possess personal characteristics similar to those of successful entrepreneurs.   

The Probability of Your Entrepreneurial Success 

A Score of 160-200     Your possess very strong entrepreneurial characteristics.  You will probably find entrepreneurship very desirable, exciting and fulfilling way of life.   

A Score of 120-159     You are midly entrepreneurial.  You may find entrepreneurship desirable and stimulating, but may have to develop your entrepreneurial abilities through training.   

A Score of 120 or Below     You will find entrepreneurship undesirable and difficult.  You will probably be more successful working for someone else, although you can still develop your entrepreneurial abilities.  So, if you are determined to start your own business, don't give up!  

    Making a decision to start your own business isn't just about numbers.  It's about you...your lifestyle, family, likes and dislikes, work habits, values, ethics, and dreams.  You need to honestly define who you are and what you want-your future depends on it!  

Questions to ask yourself:  

  • Do you have the personal drive to be a successful entrepreneur?  
  • Are you willing to work whatever hours it takes to make your business a success?  
  • Are you willing to give up the perks of being an employee to invest and run your won business?  
  • Are you self-reliant?  
  • Can you work without support?  
  • Are you healthy?  
  • Do you have the physical ability to meet the needs of operating on your own?  
  • Can you handle stress? 
  • Do you have the mental ability to meet the everyday needs of operating your own business?  
  • Can you handle the crisis situations and deadlines?  
  • Do you like people?  
  • Do you listen well?  
  • Do you have patience when working and interacting with others?  
  • Do you communicate well?  
  • Can you be a leader and a trainer for your staff as well as a front person for your business?  
  • Can you maintain a positive relationship with the people who work for you?  
  • Can you meet the needs of your customers?  
  • Do you have the ability to seel-yourself and your products and services?  
  • Can you afford to start your own business?  
  • Do you have the support of your family and friends?  

DO I HAVE WHAT IT TAKES TO BE A FRANCHISEE? Once you have determined that you have the abilities, skills and desire to start your own business, you have to further determine if you have the requisite traits to become a franchisee.   

  • Can you follow someone else's rules, even when you think you have a better way?  
  • Are you prepared to accept coaching and advice on how to run your business from a franchisor's field and headquarter's staff?  
  • If the Franchisor turns down your great idea for changing the system, can you live with that?  
  • Can you trust that a franchisor is working for the benefit of the entire system-even when their decisions do not necessarily go your way?  
  • Are you willing to share your financial information and prepare required reports each month?  
  • Are you willing, able and eager to learn new skills?  
  • Can you set aside old habits and beliefs to follow a franchise system?  

DO I HAVE ALL THE ANSWERS I NEED ABOUT THE FRANCHISE I AM CONSIDERING BUYING? Do you know the franchisor? Have you spent enough time finding out about the franchisor from:  

  • other franchisees?  
  • the International Franchise Association 
  • the franchisee's owners association 
  • the franchise advisory council 

Can you afford a franchise?  

  • How much do you have to invest?  
  • How much can you risk losing?  
  • How much do you need to live on?  
  • What is the total investment required for getting into the franchise?  
  • What portion of the investment can be financed?  
  • Can you find anyone willing to invest in you and your future?  
  • How much can you earn as a franchisee?  
  • How long will it take to breakeven?  
  • What return can you get on your investment?  
  • Can you get a better return from another investment?  
  • Are the risks equal?  
  • Is your research thorough? (Have you researched the industry, the franchisor, the disclosure documents, and talked with current and former franchisees?)  
  • Have you gotten the assistance of professional advisors who are familiar with franchising?  
  • Have you made a slow and detailed evaluation of the opportunity to determine if you will meet your personal and financial goals?  

Do you understand the terms of the contract?  

  • Have you thoroughly read the FDD and the franchise agreement?  
  • Have you had all your questions satisfactorily answered?  
  • Have the promises which the franchisor made during the your discussions been included in the agreement?  
  • have you had a qualified, experienced franchise attorney review the documents?  
  • Have you had a qualified, experienced accountant, familiar with franchising review the documents?  

Are the franchisees happy with their investments?  

  • Have you talked with and visited other franchisees?  
  • Have you worked at a franchise location to get a better feeling if this is the right decision?  
  • Have you contacted the franchise owners association and talked with the president?  
  • have you talked with the director of the franchise advisory council?  

Does the franchisor have a history of litigation?  

  • Are other franchisees constantly bringing lawsuits against the franchisor?  
  • Is there anything about the franchisor's litigation history that causes you concern?  
  • Have you discussed these concerns with the franchisor's management and the leadership of the franchisee owners association or franchisee advisory council?  

Can you make enough money with this franchise? Ask other franchisees:  

  • Are you making money with the franchise investment?  
  • How long did it take you to breakeven?  
  • How long before you started to make money?  
  • Was the investment estimate the franchisor gave you accurate? If not, how much more money did you need?  
  • Was the estimated working capital accurate? How much did you need to have and how long before you could take money our of the business to live on?  
  • Are there mistakes you made ins starting up the franchise that cost you money? How can I avoid the same problem?  

Is the franchisor making money and where is the money coming from?  

  • If the franchisor has been in business awhile, is their business being supported by continuing royalties or is it coming mostly from initial franchise fees?  
  • Is the franchisor profitable?  
  • Is the franchisor on firm financial ground?  

Does the franchisor understand franchising?  

  • Does the franchisor have adequate staff, resources and trained personnel to meet its commitment to you?  
  • Do you feel the franchisor has the appropriate temperament to operate a franchise system?  
  • Does the franchisor staff attend seminars on franchising and management? DO they know about the latest changes in the industry? Are they active in trade associations for their specific industry and are they active in the International Franchise Association?  
  • Has the franchise been growing? Are new locations being added on a regular basis? How many locations closed in the last year? Why did they close?  
  • Are the sales within individual stores increasing?  
  • Does the franchisor have an active research and development department that introduces new products and services?  
  • Do the field staff act as consultants and advisors or do they act as police personnel (inspecting franchises and writing up violations, but not offering help and guidance?)  

 

NEXT STEPS 

The International Franchise Association has over 1,400 franchisor members, representing 100 unique business categories, listed on our site.  If you are considering whether or not to go into business for yourself, but not by yourself, we are confident that you will find a number of franchise systems that might be a good fit for you.  To begin your search, visit our franchise opportunties section - click here 

For more information on the franchising business model, click here  

 

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