Starting a Business Doesn’t Have to Be As Risky as You Think
Any challenging endeavor — like hiking the Pacific Coast Trail, rafting down the Colorado River or starting your own business — offers the thrill of success. And just like you wouldn’t start a 30-day hike without preparation, you shouldn’t start a business without first doing your research.
All you have to do is read Bill Bryson’s “Walk in the Woods,” a laugh-out-loud telling of his adventures on the Appalachian Trail that result from a wretched lack of preparation, to know the importance of planning ahead.
When it comes to your money and your livelihood, little failures along the way are not so funny.
Good preparation can turn the odds in your favor. You should know as much as you can before laying any of your money on the line, and one of the best ways to get the most information about your future business is to try a franchise.
With a franchise, you can break out of the gate with a head start.
All you have to do is take the time to do your research to select a franchise that has a great track record of success. The good news is the trail is well blazed ahead of you. Learn from those who came before you, and you can increase your odds of reaching your destination.
You have three main ways to learn all about your future business.
- The Franchise Disclosure Document, which every franchise company is required by federal law to provide to prospective franchisees. The FDD contains 23 items that everyone interested in this business should read.
- A network of franchisees who can provide a font of information about their experiences with the business.
- The franchisor’s executives and support staff, which every prospective franchisee has an opportunity to meet with and get to know before signing any documents.
Six things you should know before putting a penny down
You will find a complete accounting of your upfront costs, as well as ongoing royalty fees in the FDD. See Items 5 through 7. This includes your franchise fee and all the costs associated with starting up your business, including marketing and advertising.
A franchisee’s obligations
Also in the FDD, you will find a description of what the contract will require of you. Obligations and restrictions can be found in Items 9 and 16. If you’re not prepared to live by rules associated with supplier choice or territory restrictions, cross the franchise off your list.
The franchisor’s history
In the FDD, you will find information about the franchisor’s business history, the backgrounds of its executives and whether it has been subject to any litigation or been through bankruptcy. Just as you wouldn’t hire an employee without checking into their background, don’t go into business with a franchisor that has a checkered past.
Exactly how the business should be run
Every franchise comes with a system, which means a particular way the business should be run. You can learn about the system from the franchisor’s representatives, as well as from the FDD. But your best source of information about how the system works in practice is to interview as many franchisees as possible. You should also interview former franchisees for insights into what can go wrong. A complete list of franchisees, current and former, can be found in the FDD.
The responsibility of the owner
Before your due diligence is complete, you should know exactly what the day-to-day life of the franchise owner is about. Is the job all about sales or marketing or managing employees? Is it a job you want?
How well the franchisor’s system works
From your interviews with franchisees, you will learn how well their business is functioning and if they’re making as much money as they expected. Find out how long it took them to get to profitability. Would they buy this franchise again?
You couldn’t hope to glean this level of detail about virtually any other type of business. And certainly if you’re starting a business from scratch and you have to invent your systems as you go, you won’t know how much capital you should have on hand, let alone the best ways of doing things from day one.
Still if you don’t want to follow someone else’s system and would prefer to invent your own, you may not want a franchise. A good way to get started is to contact a franchise coach to help you winnow down your list of potential franchises and check out franchises that are a good match to your interests and expertise.
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Contact Dan Citrenbaum to help you create the career you’ve always wanted. As a franchise coach, Dan brings years of experience helping people select and buy a franchise or existing business. You can reach Dan at firstname.lastname@example.org or at (484) 278-4589.
© Dan Citrenbaum 2020