Have you been thinking about franchising as your next business opportunity but aren’t sure how to choose one? With many viable franchising options available for individuals looking to open a business, it can feel overwhelming and perplexing to narrow down the list of franchise brands and select one that best suits your goals and situation. There are many pros and cons of becoming a franchisee. While it can feel overwhelming to make the leap into franchise ownership, for many individuals it offers an affordable entry point into a new business that already has brand recognition and a loyal customer base. Choosing a franchise will be a significant determining factor in your success with franchise ownership. You want to make sure that the franchise you choose aligns with your interests, financial situation, and values so that both you and the franchisor are aligned for long-term success. Once you have the information about how to choose a franchise, you will be able to narrow down the franchises you are interested in and conduct further research to select the franchise you want to open. Below is an introductory guide on starting a franchise.
Choosing a Franchise: The Basics
If you’re interested in starting a business, choosing a franchise operation that fits your skill set, interests, and financial situation is necessary to set you up for success. Starting a franchise isn’t for everyone and doing your research will help you gain a better grasp on whether or not it is the right opportunity for you to pursue. There are pros and cons to any new business venture and following a methodical process of analysis will allow you to better assess whether or not the franchise industry is a good fit for you. Below is a breakdown of how to choose a franchise to walk you through some of the initial considerations and steps to narrow down the brands you are interested in franchising with.
Determine Whether Being a Franchisee is Right For You
There are many differences between being a franchisee and being a small business owner that is not under a franchise agreement. Before pursuing franchise ownership, it’s important to understand this distinction and consider whether or not the role of a franchisee is one you can see yourself thriving in. As a franchisee, you will be operating within the rules, regulations, and guidelines of the franchisor. To be successful, you will have to work side-by-side with your franchisor to make your business flourish and be mindful that you do not have the same flexibility to make changes or decisions that a small business owner would. Some entrepreneurs can find this lack of flexibility and total ownership of the business stifling. However, many franchisees enjoy working with the franchisor to expand an already established brand.
As a small business owner, you will have to build your own brand, do your own marketing, and develop a loyal customer base over time. This can be a time-consuming, frustrating, and challenging process that requires a lot of time and money. You will be responsible for developing your product(s) and/or services(s), conducting market research to determine whether or not that appeals to your target consumers, scale your offerings, find reputable suppliers, and much more. As a franchisee, much of the trial and error are already resolved and you can immediately open a business that consumers recognize and feel loyal to. These are a few of the key differences to take into consideration if you are thinking about opening a franchise. Take some time to reflect on whether or not you think being a franchisee or a small business owner will fit best with your personality and situation. It can also be helpful to reach out to family, friends, and business associates to weigh their thoughts and feedback with your own. Whether you are starting a franchise or a small business, it is a significant financial and personal commitment that requires time and analysis.
Think About Your Goals and Situation
If you think franchising is a better fit for you than opening your own business from the ground up, the next step is to consider your goals and what you are looking to get out of your franchise. People open franchises with many different situations and goals and it is important to be clear about what you are looking for from the very beginning. Are you looking to pursue franchise ownership as your full-time job and sole focus or are you going to be trying to balance owning a franchise with other work responsibilities? How much time do you have to dedicate to owning a franchise? What are the immediate and long-term goals you are hoping to accomplish through owning a franchise? Will you be relying on the income from the franchise to pay all of your necessary bills and expenses? Would the franchise be your sole source of income? What are your family considerations and will owning a franchise complement them? Are you hoping to eventually own several franchises? These are just a few questions to help get you started in considering what you are hoping to accomplish from owning a franchise and how franchise ownership aligns with your current situation.
Determine How Much Money You Can Invest
When you are buying a franchise, you are starting a new business, which requires a significant financial investment. Before you start thinking about what type of franchise you might be interested in owning, it’s important to have a grasp on how much money you have available to invest so that you can narrow down your search. You should not expect that your franchise operation will be profitable immediately, so it is also important that you set aside money for the first few months so that you can pay all of your bills while your business is starting out. To determine how much money you can invest in a franchise, start by going through and seeing how much capital you have available. It may also be helpful to speak with a bank about potential financing to get a rough estimate of how much money you may be able to receive through financing. Through taking these steps, you should be able to get an estimate of what you are able to invest in a franchise. This will help to narrow your franchise options to those that fall within the range you determined.
Evaluate Potential Industry Categories
Before you start researching individual franchise companies, it’s important to first assess industry categories. At this stage, you can review market research about industries and how many companies are falling in each segment of the market. Keep in mind that you will want to avoid industries or segments of the market that are very crowded with the competition or sparse as this indicates that the market hasn’t been fully developed in that area or doesn’t lend itself to franchising. Start with industry categories that you are interested in or have familiarity with and then allow your research to narrow down the potential industry categories you want to pursue further.
Research and Identify Individual Franchise Companies
Once you’ve settled on the top industry categories you want to pursue further, you can then begin to research individual franchise brands in those categories. As you are researching, be sure to narrow down companies to those that will have territories available for franchising in your area. Create a shortlist of potential franchise companies that you want to talk with and get more information about. Be sure to take your time during this stage so that you can do thorough research about your top contenders.
Request Initial Information From Franchisors
Once you’ve selected a few franchisors that align with the industry categories you identified and your interests and budget, the next step is to reach out to those companies and request initial franchise information from them. Many companies that are franchises will have a package of introductory information available to send to potential franchisees. This may be in the form of a website, brochure, package, or other mediums. It is also worthwhile to schedule an appointment with a representative from each company if possible so that they can walk you through the process of their franchise systems. Once you have collected preliminary information from each potential company, spend some time reviewing all of the details to see which company or companies you want to invest more time in exploring. Be sure to narrow down significantly as once you pass this point, there will be a significant time commitment required to pursue each company. If you have a clear frontrunner, that should be your primary commitment moving forward.
Review the Franchise Disclosure Document
Once you have begun the initial discussion with a franchisor, they will often request that you complete a qualification questionnaire. Once that step is completed, they will usually provide you with their Franchise Disclosure Document (FDD), which is a disclosure document mandated by the Federal Trade Commission. The Franchise Disclosure Document should be reviewed carefully both by you and any legal and/or financial advisers that you have. While the totality of the Franchise Disclosure Document should be reviewed carefully, there are several sections you will want to pay close attention to. Items one through four of the Franchise Disclosure Document will give you insight into whether there has been any litigation or bankruptcies relevant to their experience as a franchisor or the brand. In addition, it’s important to closely analyze the payments and revenue model. These sections of the Franchise Disclosure Document will outline what you would be paying to the franchisor and its affiliates before and after opening and will offer insight into how reliant the franchisor is on franchisees for revenue. Another important area to look at is the item twenty, which shows the list of current franchisees and a list of franchisees that no longer communicate with the franchisor or have left the system. This will allow you to gain an understanding of the turnover of franchisees and flag potential resource strain.
Visit the Franchisor and Speak With Existing Franchisees
Before signing into an agreement with a franchisor, it is helpful to meet with them in person and discuss any hesitancies or remaining questions that you may have. In addition to visiting with the franchisor, it is also important to do your due diligence by reaching out to existing franchisees to discuss their years of experience with the franchisor, any concerns they have, and if there is anything they would have done differently before embarking on opening their new business. Existing franchisees can offer valuable insights that can inform your decisions moving forward.
Make Your Final Decision
Once you’ve gone through all of these steps, and perhaps more, you are ready to make a final decision about whether or not you want to move forward with franchising and if there is a franchisor you want to work with. The opportunity that you choose to pursue should align with your financial resources, the goals you are hoping to achieve, and your skillset and experience. Franchising can be a great opportunity to create your own business and choosing a franchise that lines up with what you are looking for is the first step towards success.
Franchising with Rush Cycle
Cycling studios are quickly becoming one of the top franchises in the boutique fitness industry. At Rush Cycle, we are committed to creating a unique fitness community that is built on positivity. Rush Cycle offers an affordable startup costs that are between $426,00- $550,000. We want to help you build your own business and expand our community of thriving cycling studios. Ready to start your franchise development? If you are interested in opening a cycling studio, reach out to us today to get more information.
Sources
https://www.franchisedirect.com/blog/how-to-choose-the-right-franchise-system-for-you
https://www.inc.com/guides/2010/06/buying-a-franchise-business.html
https://www.businessnewsdaily.com/1783-choosing-franchise.html
https://guides.wsj.com/small-business/franchising/how-to-select-a-franchise/