Buying a franchise offers many advantages that are not available to professionals starting an independent business. For starters, a franchise is a proven business system that has tested the waters in the market. New franchises benefit from the R&D, advertising, and operations support from the franchisor, which make a franchise operation much faster to set up.
Besides, the franchise business model has a relatively lower risk of failure, with capital much easier to raise. There’s no doubt a franchise is an incredible opportunity for those who want to run a business but don’t have the required resources or experience to perfect the daily operations through trial and error.
So, if you have decided that owning a franchise is the right choice for you, your next step will be to identify the market and offerings you’d like to invest in. Choose something you enjoy and remain passionate about in the long run, as this will enable you to deliver your best results.
1. “What type of business works best for you?”
One of the most fundamental aspects of being a business owner is taking the time to thoroughly examine the idea that’s about to become your future livelihood. It doesn’t matter whether you grow a business from scratch or scale a franchise – you should be passionate about what you do. To identify the type of business that’s best for you, consider the following factors:
Work experience can equip you with transferable skills such as communication and leadership – both of which are critical to running a business. It can help you gain an understanding of the ins and outs of a specific industry.
Skills and talents
Time management, project planning, and problem-solving are just some of the skills that your franchise business can benefit from. Identifying your strengths and shortcomings can help you select a market that suits your demeanor.
Industry of interest
Your lifestyle preferences can influence the type of franchise business where you will be most passionate. You may in fact have an industry of interest that is quite unique and rare in which case, you have automatically narrowed the selection of franchises available.
Product or service
Product franchises typically deal with fast food and beverage businesses. Pricing concerns are not so significant, and the franchisor handles marketing campaigns. The only responsibility of the franchisee is to keep the inventory levels updated.
Starting a service franchise, on the other hand, is economical. Working hours are flexible, and you can establish a schedule that’s convenient.
2. “Does a market exist for your business?”
You could be experienced in selling mortgages yet live in a neighborhood that has many mortgage brokers offering their services at competitive rates. In short, your franchise business will fail if there’s no market for what you want to sell.
Your business should strive to satisfy a need, solve a problem, or leverage a trend. To conduct detailed market research, here’s what you should consider:
Define your buyer persona
Instead of going with your gut feeling or with what you believe is the truth, create buyer personas. To gather information, set up a focus group and ask questions related to their occupation and lifestyle preferences, their primary source of information, and pain points your franchise business can minimise.
Disposable income of the target customers
Once your buyer personas are ready, categorise them based on their disposable incomes. For instance: if you plan to sell fast food, you can target a more extensive customer base, but if you want to purchase a franchise offering software services, your target audience becomes very focused.
Competitors and their offerings
Study your competitors. Find out how long they have been in the business. Get details about their marketing initiatives – Do they run any social media campaigns? Do they invest in offline advertising? How strong is their digital presence? Speak to their customers to learn what makes your competitors their go-to choice and what doesn’t.
3. “Do you have sufficient capital to run the business?”
Money makes the world go around. Indeed, entrepreneurs across the globe will agree that raising capital is one of the most important but challenging aspects of running a business, and franchises are no exception.
Did you know 30% of small businesses shut down within the first two years of operating because of inadequate cash flow? That means you should have enough capital not just to start a franchise but also to scale it until it becomes profitable.
The good news is that most franchisors help in the initial setup. Therefore, before you start your search for external financing, ask your franchisor the costs they will be handling for the first six months to 1 year. That could include standard equipment and furniture, supplies, uniforms, and inventory.
Once you get clarity on the setup costs, estimate working capital for advertising, hiring, covering insurance and utility costs, paying the rent and salaries and more. It is advisable to keep money aside as a contingency.
The most common source of startup capital is family and friends. Use them. Seek those lenders who understand not just small businesses but also franchising.
4. “Will the business be able to generate enough profits?”
When you run a business, the number one goal is to make a profit. Beyond that, it is also essential for you to consider the time and effort that will go into running the business.
If the profits you generate at the end of the year are worth your investment and hard work, it is worth considering the venture as a viable option.
Embarking on the franchising path is exciting. So, if you are buying a franchise business, conduct a rigorous evaluation of the market, your finances, and the franchisor. Choose a domain that suits your personality and isn’t heavy on the pocket. The key is to duplicate the success formula of the franchisor and to make profits yourself.