4 Critical Questions to Ask Yourself Before Buying a Franchise

Just about everyone says they would like to be their own boss if they could.  The thought of making all the important decisions, and only answering to yourself, are quite appealing.  However, the majority of us don't pursue this dream for a number of reasons.  For some, the initial capital required to open a business is completely out of the question.  For others, they find it too risky to lose their savings and investments.  Work/life imbalance is also a common deal-breaker.

These are all valid concerns and should be explored when deciding whether business/franchise ownership is right for you.  Having the ambition to run your own business is great, as the passion will drive you through the tough times.  But ambition alone is often not enough.  The following questions are some key elements you need to also ask yourself before taking the plunge into business ownership:

1) Are you willing to risk the funds?

It is not only a matter of "do you have the funds?" but also a question of "how much are you willing to risk?"  Regardless of the business you choose, there will likely be some cash to invest into the startup phase.  Typical franchises run anywhere between $75k-$500k on the average.  At least part of this investment will come from your own personal funds.

According to the Bureau of Labor Statistics, About 20% of all businesses fail within the first 2 years, and over 60% will not see their 10th anniversary.  So, the risk is a very real thing that needs to be considered, regardless of how lucrative the model looks on paper.

If you answered yes, then you are in a good position, as this is usually the stopping point for many.  Move on to the next question.

If you answered no, you're not alone.  Many people who have enough savings to fund a startup are not willing to risk losing it.  Everyone's threshold is different.  The next step would be to set up a savings account and do what you can to build up an initial investment that you are more comfortable to risk.  Then, come back and visit these questions again.  You'll also want to make sure you have more than just the sticker price for a franchise, as you'll see in question 2.

2) Can you support yourself in the beginning?

Most business models plan for a loss within the first six months, the first year, or even longer.  This means you cannot draw any income from the business for yourself.  You need to be sure your bills can be paid and you can take care of you and your dependants for at least the initial 6-month startup phase using your own savings and investments.

If you answered yes, you seem to have your finances in order.  On to the next.

If you answered no, you have a few things to consider.  The obvious option is to take another year or two to build up your savings and investments.  Before doing this, however, you should figure out what your actual monthly costs are, and find way to reduce those costs, in order to find what is needed to "survive" the startup phase.  Another option is to build in 6 months of your salary into the initial loan.  This is not ideal as you are paying back your living expenses with interest.  However, it is a route some entrepreneurs take.

3) Can you commit the time needed?

Almost all businesses require your full commitment for the first year or two.  Even models that are "passive ownership" often have a period where you are personally running the business in the beginning.  You are handling the daily operations during business hours, working on marketing during off-hours, and processing payroll while you're supposed to be asleep.

Once your business is established and running like a well-oiled machine, you can start to manage certain aspects from a distance.  Until then, you should expect to dedicate the majority of your days, nights and weekends to this venture.

If you answered yes, you are on your way to seriously considering opening a business or franchise.  Just one more (big) question to go.

If you answered no, you'll need to identify what those roadblocks are, and how to overcome them.  If you're worried about your social life, or you have other obligations that tie up a lot of your time, then it might be best to put this on hold for now.  After some time, commitments and priorities tend to change, and it would be worth revisiting these questions then.

4) Do you have support from your close ones?

First off, do they even know?  If you have told the important ones around you of your intentions, do they support you?  Moving forward with opening your own business or investing in a franchise not only affects you, but your loved ones as well.   They will likely see you less often due to the hours you will put in.  It is possible your significant other might have had other plans with your investment.  It is important to talk through these issues before committing, because although you are only signing yourself up on paper, you are indirectly signing them up as well.

If you answered yes, you are likely in good shape to start seriously looking at your entrepreneurship options.  There are more hurdles to clear along the process, but at least you have assured a strong foundation to work from.

If you answered no, it is not recommended to do this against the will of those close to you.  I'm sure you can find a ton of success stories where people went on their own and defied the odds.  But, for most people, this journey will be more successful if friends and family are seen as allies rather than more obstacles.

Conclusion

The rewards of owning a business are great, as are the risks.  Before jumping into the world of entrepreneurship, you need to have an honest look at yourself to ensure you can persevere the challenges waiting for you.  Aside from ambition, you need ensure you can meet the personal and financial commitments required to be successful.