The View from the Top is Great but Solid Research Comes First
March 07, 2016
by Juliet Denise
By definition a small business owner (aka entrepreneur) is a risk taker. However, that doesn't necessarily mean you have to be comfortable with the danger
associated with taking risks. When considering franchise business ownership, it doesn't have to be a roll of the dice or leap of faith. There are smart
and simple steps you can take to minimize your risk.
In franchising there is a somewhat predictable success curve within good business systems where 80% of owners are happy with their choice of business
when surveyed after a couple years. Success does not happen overnight. What is the secret to becoming part of 80% successes and avoiding the 20% of
owners where the business is not meeting their needs? That is the value proposition that FranNet offers our clients.
When investigating business ownership, there is a five-step process to employ that helps to guide you into making a well-informed decision, where your skills, talents, budget and interests can be leveraged to meet your goals.
The five parts of the process are:
1. Build Your Business Model
- Building Your Business Model
- Talk to the Franchisor
- Speak with Franchisees
- Meet with Advisors
- Visit the Franchisor's Home Office
This is a fun journey of introspection, based on your personal and professional goals and becomes the criteria list for your business. It allows you to
answer those questions about each business that you consider from an objective place instead of emotional state. Your business model should be revisited
throughout the research process. Because it is a living document, it may change and grow with your knowledge and insight. The most important role of your
business model is to highlight what is most important to you and your spouse and make sure the business “measures up.”
Now the work really begins…steps two through five, is the time consuming part. This is the part of the process where businesses are eliminated;
you should expect some choices to be discarded. However, the steps in the process are designed in such a manner as to allow you to make your choices based
on facts and not gut reactions.
2. Talk to the Franchisors
When talking to franchisors, you will start getting your first bits of real information regarding the franchise. At this point you will receive and begin
reading a lot of Franchise Disclose Documents (FDD). Although the FDD is not a thrilling read, it is very important. It tells you the background information
on the franchisor, the costs of entering into the business, the legal obligations of the franchisor and the franchisee, statistics on franchised and company-owned
outlets, and audited financial information. From this information, you should be compiling a list of questions that you will be asking the franchisor and
the franchise owners (aka franchisees).
3. Speak with Franchisees
Now it is time to put your detective’s hat on to find out what is like to really be in the trenches every day running the business. At this point you can
find out if they are happy with their investment and choice, as well as how well the franchisor supports them. Remember, it also important to speak with
those that left the system to get their feedback. You will find that during this process you will be adding to your list of questions for the franchisor.
Don’t be afraid to ask questions, this is a big decision and franchise ownership should be approached with a five-year time horizon in mind.
4. Meet with Advisors
Use any and all qualified professional advisors at this time; the three most popular are a franchise attorney, accountant and lender(s). You will want
a franchise attorney to review the FDD and agreements to help you interpret the document and understand your commitment, rarely will there be and negotiation
on this document that is standardized for each business system. You may also want to hire an accountant to assess the financial strength of the franchisor
and to assist you with your analysis of the business. Not all people finance a portion of their business, but some do. If that is the case, there are several
resources available which are well versed in helping you understand your funding resources.
5. Visit Franchisor's Home Office
This is often referred to as the Discovery Day visit. This is when you finally meet face-to-face and “formally interview” the key players, top management,
and other departments. At the conclusion of this visit, you should know if the corporate culture is a fit for you, have answers to your final questions,
and know if these are the type of people that you want supporting you in your business.
Once you've gone through these steps, you can be confident that you have conducted the proper due diligence, are making a fact based decision and have
minimized your risk as much as possible. You may be on your way to business ownership but it was not a jump taken in blind faith.
help you get started
and guide you through
the investigation process so that you can make a well informed decision that keeps you in the 80% of the success curve. Fill out a contact form
call me directly at 678-249-9867
Thinking of Starting a Business? FranNet Can Help