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How to Determine If Franchising Is Right for You

By figuring out how much money you’re willing to invest—and what that investment will get you—franchisees are better prepared when signing an agreement.

By Sara Amato1851 Contributor
SPONSORED 2:14PM 06/05/17

When entrepreneurs are researching potential franchise opportunities, there’s often one question that pops into their minds: “How do I know if franchising is right for me?”

The answer to that question isn’t as simple as you might think.

“It all depends on what someone’s expectations are,” said Leslie Kuban, a franchise consultant for FranNet.

Kuban says that while person A may be satisfied with a certain level of income, that may not hold true for person B. “There isn’t a blanket statement,” she added.

Terry Powell, founder of The Entrepreneur’s Source, agrees. He said, “We take a lot of clients through an education awareness and discover process when it comes to determining whether or not franchising is the right path for them. While this industry boasts a lot of benefits, it isn’t for everyone. But in order to make the most accurate decision, aspiring business owners need to make sure that they have all the facts.”

If someone is going to franchise, they want to ensure that their investment is going to lead to success. And in order to do that, they need to determine which business ownership opportunity matches their specific skill sets. For example, if it’s a business to business franchise, you’ll need to some sales and marketing experience. Other franchises, such as senior care staffing agencies, have a lot of part time employees and the franchisee will need to have management experience.

Kuban says it’s important to ask, “Does the person looking for to franchise have those skills or is it something they are confident they can develop and learn very quickly?”

However, when it comes to figuring out whether or not franchising is the right fit for someone, those parameters aren’t limited by individuals’ personal interests. It’s a common misconception that you need to have previous exposure to a specific industry before getting involved, but that’s not actually the case. “It’s looking at it from the wrong angle,” she said.

Matthew Bogart, a franchise consultant with FranChoice, said there’s two ways to look at whether or not you should franchise: what is your capacity to invest and what’s your comfortability factor.

“When you’re talking about making an investment, the number one thing that I try to find out about someone is what their risk tolerance is,” Bogart said. “Franchise candidates tend to be more risk averse than most entrepreneurial people, but they still need to take a measured amount of risk if they want to be a part of the industry.”

To get started, prospective franchisees need to determine what they’re willing to risk and then navigate the avenues to funding. A lot of candidates don’t realize all the avenues that are available to them when it comes to financial support, from unsecured financing to taking out a home equity loan or rolling over a retirement fund.

“Think about the riskiest thing you’ve ever done, think about how it made you feel and then think about how it all worked out,” he said. “A lot of times when we look back on those major events, what we assumed would be a huge risk turned out just fine in the end. Most of the time, that’s the case.”

Even if you’re willing to take a big risk, Kuban recommends reaching out and asking pointed financial questions. She said it’s important to ask how they’re funded and how that impacted the amount of working capital they have.

Most importantly, people who are looking to franchise need to talk to existing franchisees to find the best answers to the questions they might have. While some local owners are strong validators, others can be on the other end of the spectrum. That’s why it’s important to identify what the average franchisee looks like in order to determine where you may fit in a brand’s specific system.  

“Starting a business is not an overnight success,” Kuban said. “If it’s worth it, it’ll have to do with a person’s expectations and whether or not they’re realistic with regards to the time that it takes for any business to get off the ground.”