Has COVID-19 made you think about taking the next step toward following your dreams of entrepreneurship? While buying a franchise can greatly improve your quality of life, it’s also a life-changing decision that requires careful thought and planning.
The pandemic has brought on many changes across all industries, and franchising is no exception. However, with unemployment rising and more people working from home considering their future, interest in business ownership is growing. For those that aren’t sure if they want to return to the corporate world, or an office in the city, now is the ideal time to consider starting a business through franchising.
A brand-new business carries with it a lot of risks. In addition to the usual set of challenges, small business owners now need to consider PPE, employee protections, safety procedures and more. One way that business owners can offset that risk is by joining a franchise brand. As COVID-19 continues to impact small business, aligning with a proven brand can guide prospective owners through support, marketing, access to specific resources and leadership. When owners are part of a franchise system, the franchisor — and an established network of franchisees — are all there to support them.
Below are four tips for prospects to keep in mind when considering a franchise opportunity.
Follow Your Passion
COVID-19 is giving many entrepreneurs the opportunity to take their career in a new direction and follow their passion. Once you’ve decided that franchising is definitely what your future holds, you’ll come to the hardest part of the process: deciding on a concept.
Start by examining industries as a whole. If you’re a dog lover you may find success in the pet care industry, but if you’re the outdoorsy type you may prefer a lawn care or pool concept. If nothing stands out immediately, see if there are franchise opportunities that offer ways to capitalize on your existing hobbies and interests.
Meet Your Team
After you decide on a segment and a specific concept that you are excited about, it is time to meet the team. Even if this meeting is done virtually, it is an important step that allows potential franchisees to gain a better understanding of the brand’s values, leadership, culture and vision. When you buy a franchise, you’re not only buying the name and concept, you’re also buying into the practices and procedures that the franchisor has perfected over the years. Because of that, your vision of owning a local business should line up with the vision and goals of the company. A good franchisor wants you to succeed and will make it as easy as possible for you to do so, but you must follow the model.
Check Available Territories
Once you settle on a concept you are seriously interested in joining, you will need to find out if the brand has territories available where you want to operate. Also, if you are thinking of expansion plans or development rights, it is important to research this option with the franchisor and ensure that the brand has room to grow in that specific area. With the current economic climate, there may be more opportunity to identify retail and prior restaurant real estate space opportunities in local markets for a new franchise brand you are considering.
Another factor to consider is the age of the brand. Getting involved with a startup can allow you to take advantage of territory near your home. More established brands can offer bigger name recognition and marketing support but may have limited territory options available.
Evaluate the Investment
If the first three factors align, it is time to consider financials. One of the biggest determining factors in what franchise you choose to buy comes down to money. There are two main numbers you’ll want to know and understand. The first is the franchise fee and the ongoing royalty fee. Virtually all brands charge an up-front fee that entitles you to become a part of the franchise organization. Franchise fees vary greatly, not only between industries, but even between competitors, ranging from a few thousand dollars to approximately a hundred thousand dollars. Royalty can be a flat monthly fee or more often seen as a percentage of gross sales paid weekly or monthly to the franchisor.
Then, consider the initial startup costs. There’s no set formula for what this estimated figure entails, but it can include costs associated with construction, branding, staffing, equipment and resources. If money is an issue, you may want to look for a different brand that has a total investment in your start up investment range or one that offers financing. Currently, funding for franchise buyers is available through the SBA at attractive interest rates.
Lastly, you’ll want to engage with a franchise attorney who can review the franchise agreement and Franchise Disclosure Document (FDD). These are very comprehensive legal documents and enlisting the help of a professional is essential so you can really understand what your responsibilities will be before signing on.
By keeping these four factors in mind, potential franchisees can be more confident in their decision when choosing the right franchise opportunity. It is important to be realistic — sometimes, you and a certain concept just don’t match up. Remember, if you are becoming a franchisee, you are not only investing in the franchise concept, you are also investing in yourself as a business owner. It’s important to be transparent with the franchisor and yourself as you navigate this important decision.