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Is It Risky To Open a Franchise?

Franchise concepts are often considered to be less risky than starting a business from scratch, but personal business and management skills, sources of capital and timing all play a significant role.

It can be risky to open a franchise — just like it is with starting any business — but with the right preparation and due diligence, the risk level can be significantly lowered.

Here are some of the factors that can potentially decrease the risk associated with a particular franchise opportunity.

The Right Financial Situation 

A prospective franchisee needs to have the necessary capital to not only start the business, but also keep it operating successfully. This includes the ability to keep up with everyday expenses like salaries and rent for the building. If the investment and timing makes sense for where a prospect is in their career, they will be much more likely to stay in business and grow with the brand. Also, financing will likely be easier with a franchise company — the U.S. Small Business Administration offers loans specifically for franchises. 

The Right Concept

Prospects need to make sure that the franchisor has staying power in order to limit potential risk. One of the main benefits of franchising is the backing of a proven business model, but a successful track record doesn’t necessarily mean a franchise concept is 100% foolproof. A business needs to not only have a sound concept, but should also be able to adapt to a changing landscape and industry. 

The Right Plan

To truly evaluate risk, prospects need to play out the long-term strategy for their franchise investment. A major part of that strategy should be the exit plan — the owner should be able to run their business for now and successfully sell it later to realize the wealth they’ve created for themselves. The earlier franchisees can start to plan for the sale of their business, the better they’ll be able to plan for their future and minimize risk.

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