When Flirting with Franchise Ownership, Due Diligence is Required
If you’ve fantasized about delving into business ownership but want to avoid the risk and hassle of getting established and building a reputation, then franchise ownership may be the option that satisfies your entrepreneurial spirit.
Rather than take the gamble of buying or starting a business from scratch, FranNet business consultant Steven Rosen says, “Your chances of being successful are higher when you own a franchise.”
However, he also warns of the tradeoff. Although becoming part of something bigger that comes with a proven track record and possibly national brand recognition may give you the confidence up front to consider franchise investment, Rosen says you’ll also be “giving up some independence since someone else has created it.”
So, if you struggle with “someone else” being at the helm, following a formula, bending the rules, or having your creativity squelched when you can’t change the company tagline and marketing strategy, franchise ownership may not be the best business venture for you.
Rosen emphasizes the need for taking ample time to do your research—to investigate and make inquiries—prior to committing, and he encourages using the expertise of a consultant to help you determine your qualifications and whether or not you are sound franchisee material.
There is much to consider before turning your daydream into reality. Rosen says you must take into account your interests, your business goals, your lifestyle needs, and the cost, as well as your risk tolerance.
It’s essential to consider your personal skill set and what you are bringing to the table. You need to determine if you’re good with sales, training, and managing people.
Is it your goal to be part of the daily operation, or would you rather maintain semi-absentee ownership?
What are the initial costs and what are your financing options? Can you acquire sufficient funding and maintain a personal reserve?
Will you make good hires?
Do you have an advantageous location in mind? Down the road, do you envision multiple units in other places?
And one of the most important decisions—which should be based upon your experience, abilities, and passions—is what type of franchise do you want to purchase?
“There are six general franchise categories from which to choose,” says Rosen, including “food, automotive, education, retail, B2B (business to business), and B2C (business to consumer).”
After you’ve made the industry choice, you need to research the available franchise companies until you find the one that best lines up with your business values and is potentially the best match for you.
In other words, says Rosen, “Do you feel comfortable with them? Does their strategic vision correspond with your thinking—can you grow with them?”
He says that FranNet maintains “a list of franchises that are carefully vetted before we work with them,” and from that list they look for a franchise that will fit your personal business model.
In this process, it’s also important to determine the benefits that a franchisor offers you, its franchisee. Will they supply training and startup assistance? Is ongoing support available?
Rosen says to allow at least three to six months for the decision/investigation process and that in the end, “It comes down to making a personal decision—can you handle the risk?”
When it comes to the financing component, “Purchasing a franchise,” says Rosen, “requires paying something up front in addition to paying royalties,” and he cautions that “the price of the franchise in no way is an indicator of how much money you can make.”
So, where is the money coming from? First, find out if financing is available from the franchisor. After that, make a list of other possible sources, such as friends and relatives, home mortgages, veterans’ loans, bank loans, Small Business Administration (SBA) loans, and finance companies.
Rosen says if you have money tied up in an IRA, you may be able to take advantage of it without accruing the penalty linked with early withdrawal. It’s also possible to roll your 401(k) into a business loan, but be aware of any tax implications.
And for women franchisees, he says there are “preference programs that provide more favorable lending terms” due to the government’s desire to get women involved in entrepreneurship since they are currently an underrepresented group.
After doing considerable research and generating a strategic business plan, Sue Heinle took the leap into franchise ownership and became president and CEO of Visiting Angels in York, based on a passion she has for serving seniors.
Heinle admits that she has an entrepreneurial spirit and says that “being a business owner ignites that.”
As an RN, Heinle brought her experience in home healthcare and hospice administration to the niche created after Medicare cut back on its reimbursement regarding recovery care for seniors.
“The need was there,” says Heinle, “for those at home recovering from strokes and major surgery who still required non-medical assistance in areas such as dressing, meal preparation, light housekeeping, and errands.”
As the idea to strike out on her own to meet these needs began to percolate, Heinle weighed her options: She looked at a franchise model, considered partnership, and thought about her own startup.
In the end, “after talking to a lot of folks and doing my due diligence concerning the viability of the business and what was needed in my community, I decided on the franchise.”
She says that purchasing a Visiting Angels franchise allowed her to buy in to something that had already been proven to work.
In addition to that, “A franchise gets you up and running much more quickly,” says Heinle, “by providing tools, a marketing program, training, and corporate support.”
She adds that Visiting Angels holds an annual conference, one-on-one training, regional group training, and monthly webinars, and also mentions the support she gains from other Visiting Angels franchise owners across the country, some of whom have become close friends.
Heinle has been a franchise owner for 14 years. In April 2002 she knew she’d have enough financial reserve to take the leap. She quit her job at the end of May and took the summer “off” to build the franchise. She wrote up a business plan, created a budget, and looked for office space.
She went through training in September and says, “I opened the doors on Oct. 1, 2002.”
She realized that when she went “live,” she was embarking upon a service industry with 24/7 availability expectations.
Initially, Heinle says, “I was there every day.” She has since grown to three offices and says, “Even though I still consult on every case, I work more on the budget, strategic decisions, and on contracts for healthcare insurance.”
What she likes about franchise ownership is that she can bring her experience and knowledge to benefit the customer and she can choose to be hands-on.
“I don’t operate in a vacuum,” says Heinle, “but the company doesn’t hold me back. I was able to research and pilot programs unique to my community.” That’s why she advises choosing a company that “mirrors your values and your mission.”
She says that while doing her research she found other franchises to be very profit driven, while her mission to serve seniors by providing a safe, comfortable environment is in alliance with the Visiting Angels mission.
“If I did my job well, I would be able to pay my bills,” she says.
After 14 years, Heinle says of her franchise ownership decision, “I would do it all over again in a heartbeat.” BW
If you’re flirting with franchise ownership, Heinle offers these essential tips:
• Find something you’re passionate about—something about which you care deeply.
• Try to find a company that mirrors your own mission and values.
• Hire a business attorney familiar with business law.
• Hire an astute business accountant and insurance representative.
• Utilize the assistance of SCORE, the nonprofit organization that offers free business consulting.