How to Know if Buying a Franchise is Right for You
Come on, you have to admit it: after a tough day with your nose to the grindstone, you’ve thought of being your own boss and owning your own business.
Yes, the glamour and excitement of your own business sure can some much more fulfilling than working for someone else. You may even have an idea for starting a business or discovered an opportunity for purchasing a business that you think you can really grow.
In either case, you’ll want to consider these important questions before you move forward.
Will you start your own business or invest in a franchise?
You should ask yourself to consider the level of entrepreneurial spirit you have. In other words, do you want to adhere to a proven franchise system with the security and knowledge that the franchisor has developed its procedures and policies, and refining the, over time for maximum efficiency? Would you be able to the franchise operational structure, even if you think you have a different and better way of doing things? Is this franchise set-up worth paying a royalty of 8-10% for the duration of your agreement? Is the franchise brand one that is worth that expense? If you’re answering “no” to these questions, you likely will want more control over your business. You should think about starting your own business. The franchising may best be left for those who are more risk-averse.
What can you afford to invest and where will you get it?
What assets do you have that can be used for your business investment, such as a 401(k) plan from a previous employer or a sizable amount of home equity? Can you get a loan from the SBA? How’s your credit? FYI, to qualify for an SBA loan, you need to have a credit score over 680, as well as either: (i) sufficient assets for collateral plus enough to pay all your living expenses, estimated business expenses (or “working capital”), and the loan payments for six to nine months; or (ii) a secondary income source, such as the income of a spouse.
What are your long-range goals? Do you aspire to build a company that one day you can sell? … or do you want to create a legacy business to pass down to your children? …or is the plan to create a secondary stream of income for you and your spouse during retirement? You know, different businesses and business frameworks are better suited for different objectives, like a franchise, that was discussed earlier. Talk this through with an experienced business broker who knows the Sacramento business market, climate, and trends, and thinks about the end game as you determine what is it you would like the business to do for you.
Who is your target audience?
If you’re going to be in business, you’re going to be in sales. Think about the types of sales you like, if you do like sales of some sort. Do you see yourself in consultative, relationship-building sales with a longer sales cycle, or do you like the short “one-off” sales with higher volume? If none of this sales stuff appeals to you and you’re not a sales driver of any size, shape, or color, you need work with your business broker to find businesses where the business is driven to you. That customer traffic can from aggressive marketing and/or from a great physical store location with good signage and brand awareness. That will add to the start-up costs.
Will you sell a service or a product?
If you plan on selling a service, you’ll most likely be interacting with your customers. You’ll need to have some people skills, attention to detail, and the ability to follow-up. The service also may be either business-to-business (B2B), business-to-customer (B2C), or both. Your choices here will tell you something about your other expenses, typical return-on-investment (ROI), and ramp-up time.
All of these questions should be considered as you decide the type of business that’s best for you. In addition, think about the number of employees you’re comfortable managing, the types of hours you’d want to work and how hands-on (or not) you want to be in the business. work with your local Sacramento business broker to complete as many answers to these questions as you can. That way you can focus your energy and time on evaluating the right kind of business for you.
Andrew Rogerson is happy to help you buy a franchise or business in the Sacramento area. To discuss this and to learn more about other business opportunities, please visit our website Services and choose from the drop-down menu the information you’d like.
For more immediate help, please send an email to Andrew or call him at (916) 570-2674.