Should You Buy A Franchise?

When people think of franchises, they often think of fast food chains that could cost more than a million dollars to start. A McDonald’s franchise, for example, requires a minimum of $750,000 in liquid assets. While signup costs include the cost of construction and equipment, they can range from $1 million to $2 million depending on location. The good news is that once the business is operating smoothly, revenues average around $2.5 million a year.  Is franchise ownership something to consider?

While the idea of opening up a fast food restaurant can be profitable, the cost of entry is what prevents most people from making the leap to having their own business. Unless they are already established business people, it’s difficult to get a bank loan large enough to cover initial costs.

Fortunately, there are many retail franchises available that cost much less and that can become quickly profitable. If you decide to open up a UPS Store, your UPS franchise cost could be covered with a moderate-sized bank loan. You would need from $60,000 to $100,000 in liquid assets. You would then need about $167,000 to $353,580 for the total initial investment. The wide range is based on the cost of the location.

It’s also important to note that the liquid assets are not part of the money you borrow from the bank. You can meet this requirement through retirement accounts, mutual funds, stocks, and bonds. You can also get a co-applicant to help you meet this requirement.

5 Essential Requirements For Franchise Ownership

Franchises work for people who have an entrepreneurial spirit and who are resourceful enough to get the funding they need to get started. They can be less risky and more profitable than starting your own business from scratch because almost everything has been figured out—from product to marketing, and from business processes to everyday operations.

However, not all requirements are financial. You also need to be the right person for the job. You will need to have an entrepreneurial mindset, an eager willingness to learn, enough financial management skills to track your profits and losses, sufficient leadership skills to manage employees, and enough time to dedicate to the business.

Let’s take a closer look at these five requirements.

1. Mindset.

You are not likely to succeed as a franchisee if you are doubtful and overcautious or if you are doing work that does not appeal to your natural interests.

Starting a business is difficult enough, running one from a pessimistic perspective or a resigned disdain for the nature of the work makes it almost impossible to overcome problems that will inevitably arise.

Grit and determination, as well as a natural love and aptitude for the work, are essential for getting through the tough times.

2. Study habits.

Although you will be given as much information as you need to successfully run a franchise, you have to be willing to spend the time to study everything about the business.

If you are someone who is too restless and impatient to sit down and crack open the books, then franchising may not be the right venue for you.

First of all, there is a lot you must know about the business. You need to know the business landscape, your market, and exactly how to apply the standardized business processes you are expected to follow.

In addition, the franchisor will not cover everything and you will have to do some self-study to fill in the gaps. For instance, you may not be taught how to write effective advertising but merely told that advertising is important. While you may be told where to advertise for best results, you might not be coached on how to advertise.

3. Financial management.

You must be good at allocating funds, keeping track of your incoming and outgoing, and paying small business taxes. While you don’t necessarily have to be an astute bookkeeper yourself, you have to be able to understand enough to make sure the bookkeeper you hire is competent.

4. Leadership.

Managing people isn’t as simple as telling people what to do. You have to avoid the extremes of acting like dictator to acting like a fellow employee.

Leaders know how to motivate apathetic people, discipline those who shirk work, and correct those who treat customers poorly.

Fortunately, you don’t have to have natural leadership skills. Leadership can be taught and it can be mastered through practice.

5. Availability.

You will not be successful as a franchisee if you have many other commitments. If you have to run your children to after school events, run other businesses, or enroll in advanced education, this business model won’t work for you. While you can get a semi-absentee business, you will still need to spend a considerable amount of time at your business to make it successful.

Rugged Individualism

You might not be surprised to learn that Gallup polls suggest that as many as 70% of Americans hate their jobs. As some of the hardest working people in the world, this quiet desperation is not due to the nature of work itself but the loss of autonomy. This love for freedom is a national character trait. It is this sentiment that created the American Revolution and opened up the early migration to the West coast. A franchise gives you the freedom to own your own business .

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3 thoughts on “Should You Buy A Franchise?

  1. Great post! Thanks for sharing.

    In my opinion franchising is an excellent solution for landlords that want to earn more from their rental shop but not having the hassles to build their own business.

    What do you think?

  2. LOL – I was actually considering this the other day, or at least pondering whether it would be a good idea for us somewhere down the line. I met my husband while we were both working at Arby’s, and he was a manager. I know that we would be able to manage a business together very well.

    The other day I was looking up the locations for a consignment store and they had franchise information on their website. I found myself thinking about how our town would be a perfect location for one of their stores. The investment required was at least a quarter million. Then, I realized that our dream is of freedom. I would think that any business is going to be pretty demanding on your time and limit your ability to travel. But, the issue is pretty moot until we pay off our debt.
    Harmony@CreatingMyKaleidoscope recently posted..Dreams And ResponsibilitiesMy Profile

  3. Great Post! I have considered adding a Metro PCS franchise to my investment portfolio, I went to high school with a few friend that own them, and they swear by them. Its helpful to have someone thats already successful in your niche thats willing to help guide you as well!

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