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To start a business or to invest in a franchise: That is the question.
Both options can produce tremendous returns, but only one may be right for you.
If you’ve never launched your own business, think deeply about whether you’re willing to shoulder the risks and responsibilities that come along with the task. From soup to nuts, you’ll need to devise a business model, secure funding, find the right location, design and build the storefront, hire a staff, order uniforms, and create marketing materials — the list goes on and on.
When you invest in a franchise, however, your task list becomes considerably smaller because many of the above details have already been addressed. You join a well-oiled machine with pre-existing brand recognition, and you gain a support team capable of helping you avoid common pitfalls. Your franchisor will be genuinely invested in your success because the more money you make, the more money your franchisor makes.
Franchise investments are also highly scalable. Opening a second store is as simple as opening the first one. And at the other end of the spectrum, franchise investments also come along with flexible exit strategies. Whether you sell your store back to the franchisor or to another franchisee, you have greater options because you have a solid brand behind you.
Finding the Right Franchise
There are more than 3,000 franchise investment opportunities out there to choose from. That fact alone may make this decision feel overwhelming. Fortunately, with some proactive research and soul searching, it really isn’t too difficult to make a wise investment.
The following four tips should add clarity to the process:
1. Pursue your passion. A great way to narrow your search is to only consider industries you’re passionate about. Franchise investing will have its ups and downs, and being passionate about your product, brand, and overall industry will help you thrive in the tough times.
Passion-driven investing is also more likely to result in better work-life balance. The time you devote to your franchise will feel like a natural extension of your personal life — not something that drains your emotional energy.
2. Name your numbers. As clichéd as it may sound, my philosophy is that franchise investors should hope for the best but prepare for the worst. As such, they should set a reasonable, realistic investment level that falls within a proper risk capital range.
If you invest at a level that stretches you too thin, there’s not much you can do if things go sideways — which they sometimes do. You’re going to want to have some reserves in the tank
3. Comb the contract. The relationship between you and the franchisor is largely governed by a legally binding agreement. Just as you would with any other contract, you need to understand what all the sections, clauses, provisions, and charts mean — and you need to know how they might affect you. Identify your rights, any competitive restrictions, and your potential financial losses should the business fail.
In all honesty, some aspects of the agreement are far-reaching to a franchisee. However, to a franchisor, those protections are the only things that protect the whole system and its collective network. Be sure to keep that in mind.
4. Meet the managers. Spend adequate time getting to know the people at the franchise company, and don’t be afraid to ask to speak directly to the executive team. These are folks you could be working with for many years to come, so it’s important to assess whether their values and goals align with yours.
Throughout your conversations, keep an eye on whether they seem to be painting too rosy a picture. If they only talk about best-case scenarios, you may not be getting all the information. Before you invest your hard-earned cash, make sure you’re getting the full story.
Though franchise investing is far less arduous than building a business from the ground up, there will still be some heavy lifting. You, as the investor, run the show. You need to manage your expenses properly, hire and train outstanding employees, and provide top-notch customer service along the way.
A great franchisor, however, can facilitate the process and make all the difference. Choose wisely.
Ben Midgley is the chief executive officer and co-founder of Crunch Franchise. Since 2010, he has led the creation and development of Crunch Franchise, turning it into the fastest launch of any full-size franchise in the history of the fitness industry. Previously, Ben served as the executive vice president of Planet Fitness and the senior director of corporate sales for 24 Hour Fitness. Ben is the co-author of “Golden Circle Secrets,” a book which was rated as the No. 1 sales management and No. 1 customer service book on Amazon.com.