Generally, when you purchase a franchise, you are buying the right to use the franchisor’s name, operating systems, and products/services for a given period within a given location. There are three main types of franchises: product distribution, business format, and management. A product distribution franchise is a supply-demand arrangement where you will sell the franchisor’s products (e.g. Coca-Cola). In a business format franchise, you will distribute the products/services of the franchisor and follow the franchisor’s format and procedure for conducting business (e.g. McDonald’s). The management franchise is a form of service agreement where the franchisee provides the management expertise and procedure for conducting business (e.g. Hilton).
Franchise systems are as simple and complex as they appear. Therefore, you need to stop and ask yourself some basic questions and then answer them from a very self-centered, “what’s in it for me” point of view. First, what type of life-style am I looking for? Do you want to work from your home, a mobile unit, or an office? Would you like to wear a suit to work, a uniform, or PJs? Do you want to have flexible hours or 9 to 5? By starting with the life-style questions first, you allow yourself to begin truly considering what it is your looking for in life. If you buy a business, and a franchise is a business, then your life will change. Let’s make sure it is a change that moves you closer to your ideal life.
Next, you should consider the amount of time and money you’re willing to personally invest. Are you the type that wants to be in charge of the business? Hands-on ownership requires considerably more personal commitment from you than passive ownership models. In addition, will you have partners in the business? Will they be silent/passive investors or have an active role in the operations of the business? Is this a part-time or full-time venture for you and your partners? Where is the money for the business coming from? Are you tapping into your retirement plan or long-term savings or looking for lenders/investors? Do you have credit issues that you need to begin resolving now in order to make a purchase in the future?
Finally, consider the type and the duration of the business you want. Is there a business concept that portrays an image you find appealing? Is there an industry/concept that would be embarrassing for you to tell others you were in? Are you looking for a get it, grow it, sell it concept or a long-term venture? In addition, consider the commitment to following the franchise model. Are you comfortable using an established system or is it important to you to create the system yourself? You must remember that owning a business includes not only the product/service and industry but also the “back office”. Even the street vendor has to balance his books, have a point of sale system in place, and consider his return on investment levels.
As we said earlier, franchise systems are both simple and complex. If you’re considering a life changing venture such as business ownership, then you need to consider it for a personal paradigm. Ask yourself the hard questions, truly think about what it is in life you want, make a commitment to achieve what you want, and don’t be afraid to ask for help along the way.
