Investing in a Franchise – Where Do I Start?

As you go through the due diligence and validation process of looking at franchise businesses, you’ll likely learn some things about yourself that you had not thought about.

Thinking about becoming a franchise owner?  That’s great!  Investing in a franchise offers a faster path to business ownership with less risk than starting from scratch. But the trick is finding the right franchise for you. So where do you start? To quote a line from the song “Do-Re-Mi” from the Sound of Music, “Let’s start at the very beginning.” Start with the basics: 

Develop your business acquisition objectives

You don’t need to know what kind of business you want yet. The first step is to set your criteria and find a franchise that meets it. But, remember, even when all your criteria are met, it’s important to understand that there is no perfect business!

Know yourself: If you don’t know yourself, how can you know what is important?

What motivates and drives one person may be completely awful for another. It’s your business, you should be excited about it!

  1. Risk tolerance: There is risk with any business. With risk there is fear. Manage you fear, don’t let the fear rob you of your dreams. As a franchise owner, will you be able to sleep at night? Chances are, if you have been thorough throughout the franchise discovery process, you will sleep like a baby.
  2. Motivation: What does being your own boss mean to you?  Does the thought of leading a team excite you?  Does the idea of changing lives for the better as an employer and community leader have meaning for you? Is there some pain that owning a business will reduce or eliminate?
  3. Expectations: What is this business going to do for you and your family? What kind of income do you want/need? Do you want to create an asset to sell in the future? Is the franchise going to be a legacy you can leave to your children and/or grandchildren? What else?

Assess your assets: Do you have what you need to be a franchise owner?

You want to be comfortable affording and running your franchise business. Do the all-in costs make you tremble or does it seem like a manageable and sound investment? Can you lead and motivate employees?

  1. Financial: Prepare a personal financial statement. Analyze your personal financial condition. What are your assets, liabilities, net worth, cash flow? From this analysis, determine how much do you have to invest. But the real question is, how much are you willing to invest? Remember risk tolerance above. Just because you can financially afford it, doesn’t necessarily mean you can emotionally do so. You also need to include working capital. This is the money it will take to operate the business until you can draw an income from it.  Oh, you probably will still want to pay your mortgage, your kids have probably grown accustomed to eating and having shoes and clothes, etc. You’ll need to include these in your calculation. 
  2. Personal: What skills and abilities do you possess? Look at your work experience. Are you comfortable with sales and networking? How about leading a team? Most franchisors typically do not look for or even want previous experience in their industry. They will train you. But, successful franchisees usually possess transferrable skills such as leadership, financial, operational, sales, computer savvy, project management, customer service, HR, “people skills”, etc. Also, be sure to include your academic background and hobbies and interests.  

Many people ultimately invest in franchises they’ve never even considered.

Additional criteria to consider

How will your franchise impact your day-to-day life? Keep these factors in mind before making the ultimate decision.

  1. Lifestyle: This should include family consideration. A small business is a family business. Even if no other family members work directly in the business, the business will impact the family. You’ll be discussing it at dinner, on the weekends, etc. Do you want “normal” business hours (8:00 AM to 5:00 PM)? Is being open and working on weekends Ok? What about a business that’s open 24/7? (NOTE: Many of franchises that receive calls at odd hours typically have call centers or other centralized support services).
  2. Spouse: If you’re married, it’s important to include your spouse throughout the process. He/she sees things differently than you do and will likely have questions you haven’t thought about. Your spouse will likely see the impact on the family differently than you do. By having your spouse involved throughout the process, you will have his/her support and not be in a position of having the deal squashed at the end.
  3. Absolutes: What are your must have’s and must not haves? There is a huge caution here though. Remember to do so carefully because “you don’t know, what you don’t know.” An example – I thought that overnight boarding at a doggie daycare would require a human employee to be present at all times. However, since most dog kennels have sophisticated camera systems, in-person staff is not needed overnight. Here’s something to keep in mind: Don’t discount or make assumptions. Find out the details. Many people ultimately invest in franchises they’ve never even considered.
  4. Other: Geographic location, market/customers, competitive advantage, products/services, type of ownership – full time owner-operator, semi-absentee. What else?

Develop your team – Personal and professional resources 

In the franchise discovery process, you don’t have to go it alone. Call on trusted advisors.

  1. Personal: You and your family.  
  2. Professional: Franchise consultant for guidance and advice about franchises. Bankers/investors – for investment funding. Accountant – accounting advice, corporate entity, reviewing the financials, of thefranchise financials, developing a proforma. Franchise attorney – review of the Franchise Disclosure Document (FDD), and franchise agreement, setting up your corporation.

This may seem like a lot of work and that there are a lot of things to consider. It is, in fact, a lot of work and a lot of things to consider. The decision to become a business owner is a major decision. It ranks as one of the top five decisions you are going to make in life, so make it count! 

We started out saying “to start with the basics.”  What are the essential do, re, mi’s of all this?  Know yourself!  By spending time on all this “stuff,” you’ll get a better understanding of who you are, what makes you tick, what is important as well as what is not as important. Going through this exercise will likely be a learning experience.  As you go through the due diligence and validation process of looking at franchise businesses, you’ll likely learn some things about yourself that you had not thought about. Enjoy the experience and have fun. But don’t short-cut the process because, in the end, the only one that is getting cut short is you. 

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Jim Gleason is President of and a member of the International Franchise Professionals Group. He has more than 35 years combined experience in the corporate, counseling, and consulting worlds. Jim is a Certified Business Coach (CBC), a Certified Franchise Consultant (CFC), and a Certified Main Street Business Broker (CMSBB). He is active in his community having served on a number of not-for-profit boards. Jim has been on his church board and currently serves in several ministries in his church.
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