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What You Need to Know Before Opening a Small Business Franchise |
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Written by Whitaker Stacey
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 So you’re interested in opening a small business franchise? Before you put your family and your finances on the line, you need to do as much research as possible about the process of purchasing a franchise as well as the potential pitfalls and advantages. There are many, many factors to consider. A good portion of the answers to your questions can only be found by talking directly to the corporation you’re dealing with. While certainly not a comprehensive list, here are some basic things you should know before deciding to open a small business franchise.
- You’ll have to come out of pocket. A franchise is an investment, and like any investment, there will be some up-front costs, perhaps some substantial ones. Like most investments, your returns will be based in large part upon what you put in initially, and then of course there’s some luck and some good business practices thrown in the equation as well. The initial costs of purchasing a franchise vary widely; the only way to know for sure is to inquire with the franchise(s) you’re considering doing business with.
- You’ll probably lose money at first.
Although there are a lot of sure bets when it comes to franchises, making money during the first year is not one of them. Although you’ll already have a proven business model, an established trademark, and a good deal of support from the corporation, this alone doesn’t guarantee you customers—or profit. A lot of other factors go into ensuring that you will see some green including location, market demand, and customer service to name a few. Even if all of these factors are top-notch, it’s likely to be a few years before you see a steady stream of profit.
- You can write off your losses.
The fact that owning a small business can actually make you lose money is an eye-opener for many, and enough to turn them off to the idea entirely. But before you dismiss the prospect, consider the fact that you will be able to write off your losses for the first three years. This means you might get a significant tax cut that will lessen the pinch substantially.
- You’ll need some pocket change. Living expenses, that is. Many people realize the substantial cost involved in opening a business, but few realize the savings they’ll have to have to maintain their standard of living during the first few years of operation. Since you might actually lose money during this time, you need to have a hefty savings account before even considering the possibility of purchasing a franchise. There may be a way around saving the amount required to live for three years at your current level of comfort, however. If your family is willing to make some sacrifices while you get the business up and running, then you could come out a bit cheaper.
- You won’t really be the boss.
A lot of the allure of opening a small business is being your own boss. Unfortunately, this won’t be entirely the case if you purchase a franchise. Depending on the contract you signed with the corporation, there will likely be some pre-determined procedures and quality assurance guidelines you will have to adhere to. You will also be limited when it comes to hiring contractors and employees as well. In a nut shell, you might be able to call some of the shots, but certainly not all of them.
- You’ll have to mind your own business. That is, you’ll be responsible for any gains or losses, which is a big responsibility. Although a franchise can be tempting because it may seem as if a lot of the work is done for you—and to some extent it is—you will still be responsible for managing the day-to-day operations of your business, and that’s quite a big job no matter what type of business you own.
ConclusionIf you play your cards right, opening a small business franchise can be the perfect blend of freedom and security. It’s not right for everyone, however. Depending on your personality, financial status, and long-term goals, it can be a dream-come-true or a nightmare. You’ll be much more likely to make the right decision for you and your family if you’re well-informed about what it really means to purchase and run a franchise.
ReferencesBuying a Business or Franchise. My Own Business. Retrieved from
http://www.myownbusiness.org/s10/#2
Top Ten Money Questions to Ask Before Buying a Franchise. Entrepreneur. Retrieved from
http://www.entrepreneur.com/franchises/buyingafranchise/franchisecolumnistjeffelgin/article79010.html#. |
