Considering opening a franchise business? Learn how to answer three of the most common questions entrepreneurs’ families might ask.
Now more than ever, many entrepreneurs believe there are good opportunities for starting a business within their community. In fact, according to the latest Global Entrepreneurship Monitor report, there are 30 million Americans starting or running a new business in the United States.
Opening a franchise business can be a great way to capitalize on all this opportunity and dive into business ownership. Joining a franchise network lets you be in business for yourself but not by yourself, meaning you have the support and guidance of the franchisor to help you along the way. Not all opportunities are created equally, though. It’s important to carefully research and evaluate to find the best franchise business for you. No doubt your family will have some questions and concerns as well. Here are three big questions you should be prepared to answer.
How much will this cost?
The cost of opening a franchise business varies widely depending on the industry, brand and operational concept. Typical franchise fees run about $20,000-$30,0000 although more established brands can be $100,000 or more. This initial one-time entry cost grants the rights to operate under the brand name, use the franchisor’s operating system and receive ongoing management, training and marketing support.
Once open, there are also ongoing fees associated with the franchise business model including royalties and contributions to an advertising fund. Royalty fees are generally paid at regular intervals, usually weekly, monthly or annually and are calculated as a percentage of gross sales, but they could also be fixed or based on another fee structure. Some franchisors also require a monthly contribution to a collective pool of funds used to market the brand. Like royalties, the advertising fee is typically calculated as a percentage of gross sales.
Some franchise brands offer a variety of location types to fit the needs of their franchise owners. Fees vary based on the type, size and location selected. For example, The UPS Store offers unique non-traditional options that allow operations to be set up within larger properties like hotels, convention centers, colleges and military bases. They have expanded this concept to also include store in store locations that allow franchisees to set up centers in existing small businesses like a neighborhood pharmacy or hardware store.
How will we pay for it?
Securing financing to open a franchise business can be one of the biggest hurdles potential owners face.
Many franchisors extend discounts to veterans, minorities and women. Some also offer special incentives that can include lower franchise fees and/or royalty payments or limited-time deals, deferred payments, money-back guarantees and other promotional allowances.
In addition to discounts, larger franchisors may also offer in-house financing solutions to help their franchisees get their business off the ground. Some provide the capital directly and others have established partnerships with specific lenders to help expedite the loan process for their franchisees.
Other alternatives for financing are SBA loans and term loans from a bank or alternative lender. SBA loans are partially backed by the U.S. Small Business Administration. The reduced risk to lenders incentivizes them to offer more loans with lower interest rates and longer repayment terms than they would typically offer. A term loan from a commercial bank provides a lump sum of cash up-front that you repay, plus interest, in monthly installments over a set period of time. The bank will base their approval on your business plan and personal credit history. Alternative lenders typically have less stringent requirements and shorter turnaround time than traditional options, but they tend to offer smaller loan amounts that carry higher interest rates and shorter repayment terms.
What is the work-life balance?
The hard work and commitment required to run a successful business could leave your family concerned about the work-life balance you will have as a franchise owner. However, owning your own business can actually give you the freedom to set your own schedule, improving flexibility and the amount of time available for personal activities. See what Rick Hildebrandt, a The UPS Store franchisee had to say about his experience in an interview featured on Entrepreneur.com.
In addition to providing greater flexibility to allow for a better work-life balance, being a franchise owner can also be good for your family by providing an opportunity to work together. Whether becoming business partners with a family member or exposing children and teens to hands-on experience, running a business with family can be an enjoyable experience with many advantages.
Opening a franchise business is an exciting although somewhat intimidating endeavor. It’s crucial to thoroughly research to find the right franchise system to achieve your goals and suit your family’s needs. Attend franchisor discovery days and talk to current franchisees to learn more about how your expectations may align with the reality of the business. Look for franchisors with an established brand name, a proven track record of success and commitment to the success of their franchisees.