Is Franchising Right for You in the Current Economy?

Two years ago I started a social network using Ning, the public social networking platform that allows you to build your own. I called it Franchise Formula. In the last few months I have started working with a franchisor and have found myself increasingly posting forum discussions on the site and have watched it grow in terms of members and visitors. I posted an article as a discussion piece that I wanted to share with readers of this blog because many small businesses are acquired franchises. The article appears here in part.
The toughest decision anyone can make is the leap into a new business, going to the unfamiliar from what is comfortable. Many of you seeking a franchise have been pushed. Your leap is not necessarily voluntary. You've been laid off, downsized, or terminated. It's happening everywhere these days. And it is to you that I throw open the doors of this discussion.

There are so many franchise choices out there from fast food to opulent sit down restaurants, from home-based businesses focused on a wide range of services, from retail to wholesale, from educational to pet services. The range of franchise offerings is immense. So what's the right fit for you?

Here are some very important points to consider.

1. Not everyone is cut out to operate a business on their own. Some of us want a pay check every 2 weeks and don't want to live with the risk factor of self reliance. You have to ask yourself honestly. Are you willing to take that kind of risk? If you have a family are they willing to share that risk with you? If the answer is no then you should be talking to HR folks and sending out resumes, not looking at franchises.

2. Not everyone who is prepared to risk going it alone is cut out to be a franchisee. Franchises work on the premise that those who become operators are prepared to follow a proven system, a business model that has been built for them. Often franchisors mention seeking those of you with entrepreneurial skills. The truth is entrepreneurship can get in the way of being a good franchisee because entrepreneurs tend to do things their way, not the franchisor's way.

3. The cost of acquiring a franchise from a franchisor is only a fraction of the money you need to have put aside to become successful in operating the franchise. Is there a hard and fast rule for the ratio of just how much money you need in your first year and subsequent years to succeed? It varies from franchise to franchise. The relationship between the cost of a franchise and the money required to operate it is significant when talking about storefront franchises such as restaurants and retail businesses. Think of an ice berg when looking at these types of opportunities. The cost of the franchise is the ice you can see above the water. Your other costs are all the ice you cannot see. That is less the case for home-based franchise businesses where your operational costs are to some degree covered by your existing home. You probably have a computer and Internet access. You probably have storage space. You probably have a car, truck or van. You don't have to build anything. For these types of franchises your first year operational costs may be equal to or a little more than half the cost of the franchise acquisition. So is the franchise you like one that fits with your economic circumstances? We cannot all buy McDonald's franchises because not all of us have the means.

4. If you have fallen in love with a concept that is not within your budget you need to investigate sources of funding. There is money out there despite these tough economic times. In the US the Federal Government SBA loans program is worth investigating at all times when considering sources of funds. This is a much better alternative than remortgaging your home, or maxing out lines of credit and credit cards. Canada has an equivalent program through the federal government and in both Canada and the US, local banks are the places to go when considering this option.

5. Finally you need to do a self assessment when looking at a franchise opportunity. Are you ready to take the time necessary to make the franchise you have selected successful? Every franchisee goes through the same stages when operating a franchise - the euphoria and excitement at the start, the fear when the initial effort doesn't lead to immediate rewards, the grind of daily operations, and finally the potential boredom that comes with having mastered the franchise model successfully to the point that the business no longer excites and you seek a way out. It's important that you look at any franchise purchase knowing that you will experience all of these stages. Is your personality capable of dealing with this? In your own mind are you the right stuff?