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More people than ever are curious about starting a franchise business. The potential rewards seem obvious, but the risks also seem high. Even more than risk and reward, starting a franchise requires a hard look in the mirror to decide if you really have the makeup to become an entrepreneur.
Here are seven questions you should ask yourself before starting a franchise business.
Related: 7 Things You Need to Know Before Becoming a Franchise Owner
1. Do I have a future vision?
To take action and start a franchise, you need to understand your why, not necessarily the widget. Do you have a future vision of your life you’re trying to achieve? Think of that as the destination and the franchise as the car — the vehicle to help you get to the destination.
A clear future vision should include your involvement in the business, your career and the lifestyle you visualize for yourself. This will help you select the right franchise model that fits this vision.
2. Do I have confidence, grit, determination and resilience?
Every business owner in America had to deal with the impact of Covid-19. There will be unknown future obstacles when you start a franchise.
To move forward, you must bridge uncertainty with an emotional commitment and confidence to overcome obstacles. You must also have the grit and resilience to see through difficult periods. A franchise can help you launch more quickly than starting a business from scratch and will help you navigate any difficulties through best practices from a network of fellow franchise owners.
3. Should I go it alone or engage a franchise consultant?
Like shopping for a house, you can certainly find franchise opportunities on the internet. However, it’s a noisy environment with thousands of brands — and like everything else, some are good and some are bad. And no franchise brand shows its business model on its website, so you’re drawing conclusions purely from a consumer viewpoint.
You cannot easily find newer emerging brands on the internet and can waste tons of time investigating brands only to find out they’re not a fit. A franchise consultant, like a good financial advisor, will reverse this process and start with you and your goals, help you set your criteria and only then match you with franchise brands that fit. They then will guide you through the investigation with education and resources.
Related: How to Narrow Down Thousands of Franchises to Find the One That’s Right for You
4. Do I have the capital to start a franchise?
You should carefully consider your financial ability when starting a franchise. To understand the specific capital requirements for any particular franchise, you can consult Item 7 of the Franchise Disclosure Document, which details the Estimated Initial Investment. These are based on actual franchises and tend to be very accurate. However, make sure to build your own estimates, as these line items can vary significantly between franchisees.
While there are always exceptions, investment ranges can commonly be broken down into three categories. These include self-employment or work-from-home models; scalable executive service models; and semi-absentee or semi-passive models:
- Self-employment or work-from-home models with few or no employees that do not require customer-facing real estate generally range from $75,000 to $150,000 in total investment per territory or unit.
- More scalable, equipment-intensive service brands that do not require customer-facing real estate tend to range from $100,000 to $350,000 per territory or unit.
- Brick-and-mortar location-based franchises require more real estate investment but tend to be more semi-absentee and can range from $250,000 to $1 million or more per unit.
5. How will I finance the franchise?
There are many options to help you finance your new franchise. If you have a former 401(k) or IRA, you can roll over a portion of your retirement account balances in your new business’ stock tax-free. Candidates also use personal loans, such as a home equity line of credit (HELOC) or a securities-backed portfolio loan, which have the lowest debt costs and easiest access to capital.
You can also obtain an SBA-guaranteed bank loan, which is a popular option. Many franchisors will have prearranged financing with preferred vendors. Regardless of your financing choice, it is important to consider it ahead of time to make sure your business and personal needs are covered during your business launch.
6. What franchise industry is right for me?
Many of my candidates are looking for a business they’re passionate about. Of course, you need to believe in your product or service, but it doesn’t need to be your hobby. It is the business model that needs to fit. For example, I owned a fitness franchise. While I’m not a fitness junkie, the business model fit and seeing the joy in our clients transforming their health was very gratifying.
Going through a deliberate process of investigating business models that fit your criteria and comparing them with the help of an experienced consultant is often the best way to find the right industry. By focusing on the business model and your role as a franchise owner, you will find the industry can be a secondary criterion.
Related: Check Out the Fastest-Growing Franchises In 2023
7. Do I believe in continuous improvement or “if it isn’t broken, don’t fix it?”
If you have a more reactive style, franchise ownership is likely not for you. Owning a franchise requires you to constantly look at the business with an eye toward continuous improvement — making each process, such as sales, marketing, operations or customer service, continuously better for your customers. Having a proactive approach versus a reactive approach is critical to success.
While there are many considerations in starting a new business, fundamentally it is an emotional decision that starts with you doing some self-reflection. Asking yourself the hard questions will let you know if you’re emotionally ready to take the next step.
If you’re not ready, consider what changes or milestones in your life need to be achieved so you’re ready when the time comes. If you find you are excited and ready to move forward, seek out the resources needed to explore franchising and commit to follow through the process. This will bring you the confidence you need to find success.
This story originally appeared on Entrepreneur
