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When is a Franchise Business the Right Choice?

December 31, 2015 by Dr. Jon Warner in Entrepreneurship

When is a Franchise Business the Right Choice?

There are essentially two kinds of people who often think about a franchise business.

A) The corporate career person who wants to transition to something more independent but does not want to start a new “startup” business from the ground up.
B) The small businessperson who thinks that their operation may have the potential to be best expanded by a franchising format. 

In this article our aim is not to advocate for selecting a franchise model as the best path to take but to look at why this might be a compelling choice (or not) for some people, and especially for the two categories of people listed above. We will do this by listing eight key questions that will help to reveal as much information as possible and allow a sound business decision to be made. 

Would your family support your decision to give up your current salary? When you begin any new business, and a franchise is no different, in most cases, you probably won’t be drawing a salary for a period, possibly for six , nine, or even twelve months. If this presents a problem for your family, the timing may not be right.
How ready am I personally to make this transition (health, stress management and disposition)? Not everyone is right for entrepreneurial life and even though a franchise helps to de-risk the transition somewhat, an individual needs to self audit whether they are fit and healthy enough, able to manage stress and have the right disposition to “juggle” in the way that will be demanded.
What is your risk appetite? Your risk “appetite” is your comfort with taking risks with your time, money and other resources to build something that will only pay off in the long term. A franchise is often lower risk than your own startup but is still a riskier venture than working for a company.
Can you handle more than one type of responsibility? Individuals have to go well beyond their functional expertise when they go into a franchise. They therefore have to determine whether they can quickly extend their knowledge and expertise and be comfortable in having to wear many “hats”.
What is my overall work ethic? Like a startup business a franchise will require long working hours and a higher level of work input. You need to be ready for working harder and longer and to give up or lessen some non-work interests to compensate.
Do you like managing employees or do you prefer to work alone?  Franchises come in all forms, and you can find one where you primarily work alone or one in which you will have to manage employees. You need to make sure that this fits your skills and personality.
Can you follow someone else’s system? A franchise typically comes with an operating system, or the documented method the franchisor has formulated to help its franchisees achieve success. If you have a yearning to invent your own unique operation, don’t buy a franchise.
How patient and persistent am I as a person (to wait for breakeven and ultimate success)? A franchise may be a little quicker to get to break-even than a startup but still needs lots of patience and persistence to recover from setbacks. An individual with this slow and steady and tenacious approach is critical.
How much total investment do you want to make (up front and in working capital)? Many people investing in a franchise invest too much or fail to have enough cash for the working capital they are likely to need – it is therefore very important to calculate your total needs up front.
What kind of income and return are you looking for? Different franchises will offer different possible returns but this often depends on how much time you are prepared to put in also. Again it is therefore critical for an individual to understand this and work backwards from the return they are looking for.

The above questions are extremely useful in thinking about entrepreneurial life, even when it is in the relatively “safer” climate of a well-established and reputable franchise operation. We therefore recommend that all individuals considering this step write out their answers and talk to friends and colleagues as much as necessary before making the final leap.

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About Dr. Jon Warner

Dr. Jon Warner is a prolific author, management consultant and executive coach with over 25 years experience. He has an MBA and a PhD in Organizational Psychology. Jon can be reached at OptimalJon@gmail.com

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One Comment

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About the Editor and Primary Author

Jon Warner

Jon Warner is an executive coach and management consultant and in the past has been a CEO in three very different companies. Read more

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