Is Franchising Right For You?

Not all entrepreneurs thrive on a predetermined business model

experience running their operations, as well as working with the franchisor and being part of the system.
Book Resource: The Franchise Fraud: How to Protect Yourself Before and After You Invest (BookSurge; $18.99) by Robert L. Purvin Jr.

Make yourself attractive.
If you think convincing a franchisor to choose you as a franchisee is as easy as filling out some paperwork and plunking down cash, you’re wrong. Agreements and financial investments are important, but franchisors weigh other factors to help them decide whether they want to work with you.

Franchisors will want to know that you have a proven track record of success in your previous endeavors, says Cohen, but those endeavors are not limited to business. They may also want to see that you’ve had some profit-and-loss responsibility as well as fine-tuned people skills, especially if you are entering a service-oriented industry. And of course, you will want to make sure that your personal and business credit are excellent (read “Do You Know Your Business Credit Score?” Enterprise, July 2010). Larger franchisors have the luxury of being more selective, so polishing up your business skills is paramount.

Figure out the financing.
One myth about franchising is that it makes capital more available to you. Almost no franchisors provide capital, and Purvin says the opposite is more often true—many franchisors come to franchising as a way to get capital, not give it away. But if you choose your franchise well, you can find increased favor with lenders. For the most part, Purvin says, lenders are “looking for businesses that have a lot of equipment and a lot of real estate that they can provide as security.  The more equipment or assets you have that can be used as collateral, the easier it is to find money. It’s not easy to get traditional capital for a soft business.

Prospective franchisees should think long and hard about how they plan to finance the business, whether it’s through personal savings, an SBA loan, or through a bank that provides franchise financing.

Fiscal matters are certainly an essential part of one’s ability to successfully navigate the franchising landscape. However, finances are one card in a deck of many that you must be sure about if you plan to take the gamble on franchising in hopes of winning big.

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