Franchise Buyer Self Assessment, What Fits You?

Posted on May 13, 2011 by Eric Bell

When considering the purchase of a franchise it's very important to do some self assessment to see what may be good options and conversely what may not.

Three things that often drive the decision of most prospective franchise owners are:

• Do I have the basic skills necessary to make this work?
• How much is this really going to cost,/ what is the true risk of doing this
• What kind of lifestyle will I have if I buy any particular franchise?

In general franchise offerings fall into two types, "they come to me" usually Retail. Or "I go to them" usually Service.

For retail, in theory, you open up your shop, hopefully in a good location, do some advertising and marketing, then your customers "come to you." The financial outlay and thus the initial "risk" are usually perceived to be higher for a "they come to me" type of business due to the fact that there are leases to sign, equipment to buy and a the cost of a building out the location. Location can and usually does pay a huge part in the success of this type of business. A good location on a high traffic road with good visibility can make a tremendous difference to a retail business. Without drive by traffic or a good shopping center location, the business is totally dependent on advertising and marketing which can a quite a bit to the monthly expenses.

Service franchise offerings are mainly "you go to them" types of businesses. Service can be B2B or B2C but still, a lot of selling is almost always involved in a service franchise. The big attraction of most service franchises is the lower cost of entry. Many of these can be started and run from small office or home office which means low start up and low overhead. For not much more than the franchise fee and some computer equipment, you can be up and running. That said, if you're the kind of person that cannot go out and get business, or does not want to learn how to, then this may not be a good franchise choice for you. With some service franchise offerings one is more or less purchasing the rights to sell a product or service in a geographic territory. Many times cash flow can be created reasonably quickly. An example of this would be a dog training, or coaching franchise. In other cases, a business must be built over time, and staff must be added to handle the business that is generated by the sales and marketing efforts. An example of this would be a senior care or staffing franchise. These franchises require someone that is willing to get out and network to build relationships and thus business, not necessarily "closing" a deal each time in exchange for a check. Usually the time to become "cash flow positive" is longer in this type of franchise.

While the initial investment is a big consideration when purchasing a franchise it definitely it is not the only nor even the most important one when determining your potential for success.

Franchise Article Contributor - Kevin Ghezzi, Business Trade Group