Pepin Valley Consulting The Franchising Specialist
Franchising basics
By Bob Hebert
Many people I talk to are interested in owning a franchise (who hasn’t at one point or another wanted to be their own boss?) but don’t know enough about franchising to know if they can/should seriously consider it for themselves. What they are looking for to start with are quick, simple answers to basic questions. What I’ve compiled here are the questions I’m most frequently asked and short answer to them. Hopefully they can be of some help.
Is being an entrepreneur right for me?
Being an entrepreneur is not for everyone. Characteristics of an entrepreneurial spirit are self motivated, results orientated and a positive attitude. An entrepreneur must think in terms of opportunity instead of security, long term goals instead of short term gains, profits instead of paycheck, taking chances instead of avoiding mistakes. Above all an entrepreneur must be an excellent communicator and people person.
With risk can come reward. Being an entrepreneur means hard work and may result in nothing. Are you willing to risk a great deal of your time and money in the hopes of a better lifestyle and income? If you can answer yes, an entrepreneur may be an option for you.
Which is better, franchise or independent owner?
There are of course pros and cons to both. The biggest pro to franchising is you get a proven business plan when you elect to franchise. The franchisor has already been down the road of creating a new business. Through trial and error they have learned from the mistakes common in starting new businesses. They know what marketing plans work, they have training programs in place, accounting system ready to go etc. The con is all of this laid out for you. You will not get a choice in many areas of the business. If you want to create something that is uniquely you, franchising is not the right option. If you want the security of a proven track record and can follow the rules to duplicate them in your own business, franchising may be an option.
Another con to franchising is getting a hold of the business plan will cost you in the form of a franchise fee. Franchises do not give this information away for free. There are also ongoing royalty fees and advertising fees. Getting into a franchise is not cheap. What you get for the fees is less risk and ongoing support. Studies show franchises are less risky than independent start up businesses. An Independent agency called Business Opportunity Source Consulting did a survey and found that franchises enjoyed an over 90% success rate compared to 18% for independent businesses (success meaning being in business for at least five years). And this is a long term trend. A study by the Department of Commerce found that from 1971-1997 less than 5% of franchises closed each year. Having said this I want to stress that there are no guarantees that having invested in any company you will succeed.
How much money do I need to get started?
To start any business you need some liquid cash. Franchising is no different. The number one reason businesses fail is inadequate capital. Meaning an entrepreneur did not have enough money to get the business up and started properly or did not have enough working capital to invest in the company (and pay personal bills)in its infancy until it could make it on its own. Franchisors know this, therefore they want to be sure any franchisee applicants are well funded from the beginning. Typically you will need $20,000 to $150,000 in liquid cash to start a franchise with the ability to borrow more. A typical total investment can range from $30,000 up to $1,000,000 depending on the type of franchise, number of employees , equipment needed etc. Cash to start can include money in the bank, stocks and bonds or mutual funds, home equity or even retirement plans in some cases. Financing may be offered through the franchisor, either directly or through providing assistance with a bank. Your own bank is another source for funding along with SBA (Small Business Administration) loans. Typically a FICO score above 640 is needed.
Do you want to own your own business? Can you follow a structured business plan? Are you a people person? Do you have the financial resources available to purchase a franchise? If you can answer yes to these questions the next step is to determine which type of franchise is best for you.
Which franchise is right for me?
There are 1000’s of franchises available. From home based to retail fronts, part-time to full-time, owner operator to owner executive and in just about any industry imaginable. This is where Pepin Valley Consulting comes into the process. As a franchising specialist we represent 100’s of franchise companies. Our job is to match individuals to the franchises that best meet their needs. We do this by having a 30 minute telephone interview with you in which we ask questions to determine your interests and strengths. We then take the data, run it through our system and make recommendation based on your requirements. The next step is to introduce you to the companies you choose and guide you through their validation process. Our services cost you nothing, fees are paid by the franchisors, who save money by not having to do all the marketing and qualifying for potential franchisees.
The final question you need to ask is what’s in it for you?
By this I mean are the time commitments, risk and investment worth the time, effort and income that you will get out of the franchise. After all, being your own boss is great but you still have to pay the bills. Will the franchise you choose be able to afford you the type of lifestyle you want in both earnings and time commitments? With this question we get a little bit ahead of ourselves. This question cannot be answered yet in the process but it is a good question that needs to be answered before you agree to buy a franchise. I add it to this discussion at this time because I find most people new to the process want to be sure it is addressed.
Rest assured that before anyone asks you to sign on the dotted line to buy a franchise you will be confident you can make a good living doing it. A document that will go a long way in answering this question will be provided to you during the process. It is a disclosure document that most likely will come in the form called the FDD (Federal Disclosure Document). The FDD tells you about the company, the executive officers of the company, and current and former franchisees owners. Some of the key components it will disclose are all fees you will be charged, it will give you financial statements for the company and contact information for current and past franchise owners. From this document
you will learn a great deal about the company. What the company expects from you, what you can
expect from the company, and what people who own franchises in the company think of the company.
There are other articles I have written that go into greater detail on some of the answers introduced in this article. They can be located on this website (www.pepinvalleyconsulting.com) under the articles section . To learn more about the franchising process click on the step by step tab.