Thinking about turning your business into a franchise? It isn’t a step to take lightly. Here are four things to consider before you begin the process. And if you need additional help, Safeguard has strategists professionally trained to guide you through the basic steps. Give us a call today!
Opening a franchise is a tempting approach to entrepreneurship. You get a playbook and an established brand, and the franchising opportunities appear virtually endless. FRANdata, a franchise-focused research and advisory firm, estimates that two to three franchise brands are launched each day, with the lodging industry, health and fitness businesses, and sit-down restaurants leading the charge.
Business-owners-to-be have taken notice. The International Franchise Association Educational Foundation estimates thatfranchise employment will be up 3.1% in 2016, compared with a growth rate of 1.9% in nonfarm private-sector employment, continuing a steady trend established in 2011.
But it’s not all froyo and free lunches. Franchise owners face many of the same problems as traditional entrepreneurs, includingfinding small-business funding, managing a staff, and keeping customers happy.
Before you sign any franchise agreement, ask yourself these four questions:
1. Are you comfortable running a franchise?
Yes, a franchise comes with guidelines from the company to help you get started, but you have to feel comfortable executing the vision, says Darrell Johnson, CEO of FRANdata.
“That involves two strategies: outward facing and inward facing,” he says. Outward-facing strategies are consumer-focused and include customer service, marketing and sales. Inward-facing strategies involve the nitty-gritty of business management, such as human resources and financial management. “You have to be good at both, or feel comfortable putting people in a position to do those things for you,” Johnson says.
Even with the support of a brand behind you, you’re still entering a world where you are in charge of hiring — and firing — employees, managing finances, and turning a profit.
“You can’t just say, ‘I love yogurt and want to sell frozen yogurt,’ ” Johnson says.
This is true, he notes, not just of opening a franchise but also of starting any type of business.
2. Do you have money, and then some?
“Whatever you think you’re going to need in the way of capital to get started,” Johnson says, “have a fair amount of cushion beyond that.”
Beyond traditional costs associated with starting a business, franchisees also face specific fees required to get their store off the ground. They include a franchise fee charged by the brand, potentially costing tens of thousands of dollars, and royalty and marketing fees, regularly taken as a percentage of sales.
Outside of fees and startup costs, Johnson recommends having a healthy amount of working capital to help get you through unexpected events, such as liability issues when a customer slips and falls, or broken equipment.
“The day you run out of cash is the day you close,” he says. “You need that working capital to last you longer than you’re led to believe or think is necessary.”
Read the rest: 4 Questions to Ask Before Starting a Franchise | Nerdwallet, Inc. | https://nerd.me/1W3VEXA