If you’re an investor looking to put some cash to work outside the stock market, investing in a franchise business is a very popular option that is worth looking into. As tempting as it may be to just type the word, “Franchise” in your favorite search engine to “See what’s out there,” you’re going to need to understand several things first. JPayton Consulting assist entrepreneurs and investors nationwide put their ideas into action. Click Here to learn more.
- How Franchises Work
It’s been called the greatest business model ever invented, and has enabled hundreds of thousands of people that never owned a business before to do just that; become owners of their own business.
The premise is simple; someone comes up with an idea for a product or service, implements it, and starts a business. The business turns out to be easily replicated there for the opportunity for expansion is simplified. This person doesn’t really want to just use all of their own money to grow the business, so the decision to seek out investors is a smart choice.
It’s just that the investors in this case are not only going to buy into the business; they’re going to run it too. As franchisees. That’s right; the person who came up with the business idea is now going to be the franchisor, and will be using other people’s money, i.e., franchisees, to grow the business.
- My Personal Risk Tolerance
Investing in a business (franchise or non-franchise) is risky. There’s no way to completely mitigate your risk, but there are ways to lower it. Are you prepared to risk your own money in a business venture?
One thing you can do to make sure that you’re really ready to write a check to a franchise company is this: Look back at some of the major decisions involving money that you’ve made over the years. How were you able to handle the “risk” part of those decisions? Did you analyze things for weeks, maybe even months on end? Or, did you do some research, and make your decision relatively quickly?
Bottom line, calculate your risk and be comfortable with it.
- The Franchisor’s Rules
Franchising is not free from accountability to the franchisor, it can’t be. Can you imagine going into your local McDonald’s for a Big Mac only to find out that the franchisee decided to discontinue it?
Before you commit to becoming the owner of a franchise business, make sure that you understand the rules. All franchises have them, and need them. Rules maintain the consistency of the products, the services, and the brand.
- Your Personality Type
Before you become a franchise owner, do a self-check. Telling yourself that you’ll follow the rules in a franchise business, then actually following them once you become a franchisee are totally different things.
Some self-reflection is definitely warranted here. For example, in a corporate setting, there are always rules to follow. How did the rule-following work out for you? Were you generally comfortable with them, or did you have a problem following them? Did you feel that the rules that were in place didn’t apply to you? Dig deep here; either you’re a rule-follower, or you’re not.
If you don’t generally follow the rules, don’t buy a franchise. It probably won’t work.
- Your Finances
If you don’t know where you stand financially, you’ll waste an awful lot of time learning about and getting excited about franchise opportunities that may not even fit your budget.
Do a simple net worth statement before you start your franchise search. Add up your assets. Then add up your liabilities. The difference between the two is your net worth. You’ll need this information for the franchisors. (Most franchises have a minimum net worth requirement)
- Who Am I
Searching endlessly online for that perfect franchise may sound like the right way to find one, but it’s not. Trying to figure out what’s what without customizing your search can be a massive waste of time.
Instead, grab a legal pad and write down your top professional skills. In addition, write down some of the traits that tend to define you. Are you outgoing, or are you introverted? Are you highly competitive? Are you good with details, or are you a big-picture person?
- How to Find Possible Matches
Now that you’re armed with your top skills and some of your more dominant personal traits, it’s time to start your search for a franchise. Go to your favorite online search engine and type in “franchise opportunities,” or “franchises for sale,” and start digging in. You’ll see specific franchises come up, as well as a number of franchise directory type websites.
Here’s the trick; only request information from those that seem to be a fit for what you wrote down on your legal pad. See No. 6. And don’t forget to make sure that your net worth meets the minimum requirements.
- How to do proper research
Once you’ve found some franchises that could turn out to be a match, it’s time for you to do your research. You’ll find that some of your questions can be easily answered by your franchise development representative, while others can’t.
For instance, unless franchisee sales and earnings figures are clearly disclosed on the Franchise Disclosure Document, (which you’ll receive from the franchisor) your franchise representative cannot answer any earnings-related questions. But don’t worry; all you have to do is ask the current franchisees. In most cases, that’s where most of your answers about the business will be coming from anyway.
- You’ll need a business plan
Don’t even think of going into your local bank to apply for a small business loan without a formal business plan in your hands. The lender will want to see your projections and hear your story. JPayton Consulting can help you create one.
- The Process
The entire franchise discovery and research process will probably take two to three months to complete. Eventually, you’ll have to make a yes or no decision.
You’ll probably be a little nervous. After all, it’s not like your starting a new job. If you buy a franchise, you’re going to have real skin in the game, and it’s a game that you’re expecting to win.
You can win, if you focus on choosing an opportunity that’s really right for you, that you’ve done terrific research on, and that easily fits into your budget. Click Here to begin your search.