Monday, December 13, 2010

Controlling your Financial Future through Franchising

The American economy is finally beginning to show signs of growth. But we are experiencing a jobless recovery, leaving many Americans still scrambling for employment. In this economic climate, more and more people are deciding to take matters into their own hands by purchasing a small business in the form of a franchise. The spirit of the American entrepreneur is rising up to fill the unemployment gap. But if you want to be part of this movement, and you want to start a successful franchise business, you will first have to absolutely embrace the franchise buying process.

Starting a new business is not a weekend hobby, nor is it an occupation for amateurs. Running a franchise involves a lot of hard work, and a good deal of risk. Right at the beginning of the process, you need to embrace these qualities of entrepreneur ship. This involves taking two very important steps:

1. Decide What Type of Franchise Owner You Will Be

There are essential two types of franchise owners: operators and investors (hands on and hands off). Investors are people who simply put up the cash for an operation. They treat the franchise as an investment that they expect to get a return on. All that these people do is put money into a venture and sit back to watch it grown, hoping all along to passively reap a bountiful harvest in a year or two.

Operators, on the other had, perform the day to day work of the business. These are the people who really put their sweat and tears into the franchise business. They are like the heart and lungs of any franchise unit. They work and work to ensure its success, hiring new employees, making sure every aspect of the business is up to franchise code, and usually spend a good amount of time working on site.

Most of the time however, franchise owners will choose to occupy some space between these two extremes. If you choose this route, you will be responsible for the success of your business by taking care of its day to day operation, but you will also be an investor expecting a return. Put simply, you'll be an investor investing in yourself. Sure, this involves some degree of risk. The great thing however, is that you will be investing in a business that you actually have direct control over. You become empowered to ensure your own success.

Finally, you will also have to decide whether you want to start a new franchise unit or buy an existing one. Both options have different risks which you need to understand before beginning. While starting a new unit gives you more control over where you will operate, buying an existing unit may allow you to take over a business that is already generating revenue. But watch out! No one sells a successful franchise unit for no reason. You don't want to pay top dollar for a franchise unit only to find out that the seller was dying to get rid of it because it was in a bad neighborhood and generating little to no income.

2. Make a Personal Commitment to Your Business.

Once you have decided what type of Franchise owner you plan to be, you need to make a major commitment to your new small business. Aside from getting married or deciding to have a child, this is one of the biggest commitments you will ever make. As I've said before, running a business is not a game. You are taking your well-being and your future into your own hands.

Your personal commitment to your business will of course include a major financial investment. You're going to have to put a lot of money into this business right at the beginning, and simply cannot be stingy about it. Whether you decide to take out a loan or to pursue nontraditional funding such as using your 401(K), you're going to need to put a lot of your own money on the line. You need to know and embrace this risk before you begin.

Make sure not to underestimate the monetary cost. While some franchise agreements may list an “initial investment” that seems rather low, remember that this is rarely the total amount that you will need to invest in order to get your business started. You will also need a good deal of working capital, money for supplies, and money to pay your legal and financial experts. All of this adds up. Calculate these costs meticulously and then add an extra twenty-five or more percent just to make sure. Once you have done all of this, look carefully at the number in front of you and decide if you can commit to it. Embrace this financial investment without doubt before you get started. Otherwise you may find yourself with major regrets somewhere down the road.

One fact most people miss is having sufficient personal living expenses so as the business ramps up to a cash flow position you can cover you personal expenses without pulling money prematurely from the business. This is as important as having the correct working capital to operate the business.

It is not uncommon for a new franchisee to have to acquire funding from many sources at once. You may find yourself dipping into your 401(k), involving one or two outside investors, and establishing a line of credit with the bank—all at the same time. This is fine, as long as you fully understand and embrace the risks before you begin.

And then there's the part that most people forget: the time. The amount of time that you are going to have to invest into your franchise unit in the beginning is going to considerable. Are you ready to work at least full time—and probably more—in order to get your business off the ground during its first year or so? Starting a successful business isn't something that you can do over a couple weekends. It will take a major time commitment, and you have to understand, accept, and embrace this in order for your franchise unit to prosper. But if you do embrace this risk, your chances for success are great, and the rewards will be even greater.

No comments:

Post a Comment