Franchise Questions

By: John Hoose - Founder, LaVida Massage

 

For many motivatedentrepreneurs and aspiring business owners, there is no time like the presentto start a small business. As the economy begins to recover from an extendedrecessionary cycle, prospective business owners are discovering that, perhapscounterintuitively, the current state of economic affairs presents what is inmany ways a promising environment in which to start a business. With prices lowand landlords hungry for quality tenants, there are abundant opportunities fora self starter to establish their own small business, and to do so in a mannerthat is financially feasible and logistically sound.

For many who areconsidering taking the plunge and making the financial and personal investmentnecessary to get a small business off the ground, becoming a franchisee is anincreasingly attractive option. The wide range of options available tofranchisees offers a level of diversity and opportunity that would be otherwiseimpossible to achieve without the support of an established franchise. Today,the best franchisors offer a comprehensive program of structured support to notonly help franchisees get started, but to successfully maintain a profitableand rewarding business. From online resources and technical support, tofinancial assistance and strategic planning, the degree to which a franchisorcan contribute to the long-term success of a new franchisee is significant.

As prospectivefranchisees begin the process of evaluating what options are available to themand what business opportunities are best suited to their personal interests,talents, educational background and financial resources, they must also takeinto account the business model, the marketplace, and a host of other importantfactors involving everything from site selection to operational details. Thebottom line is that before entering into a franchise relationship and signing afranchise agreement, prospective franchisees should not only take time toconsider their options and investigate the many variables that go into theirdecision, but should also focus in on answering some very specific - and veryimportant - questions.

The key questions toask (and answer!) before opening a franchise include the following:

Arethere top tier locations available in your area?

While "location,location, location" is a well-worn residential real estate cliché, the logicbehind this real estate axiom applies equally to the site selection criteriathat all new business owners must consider. Well-established and familiarnational franchises such as popular chain restaurants provide a goodillustration of how this dynamic can impact the decisions of a new franchisee.With established franchise concepts, it is not uncommon to discover that almostall of the prime locations in a given market are already gone. A little healthycompetition is one thing, but a saturated market is unlikely to provide fertileground for a new franchisee. When reviewing their options, prospectivefranchisees should evaluate both the local and regional marketplace and thedegree to which established competitors may impact their bottom line. Newerconcepts tend to have greater flexibility and availability, and a qualityopportunity can enable new franchisees to get in on the ground floor andestablish themselves as a market leader.

Isthe franchise concept inventory-based or service-based?

Determining if afranchise concept follows an inventory-based or service-based business model isanother important consideration. Inventory-dependent businesses frequentlyrequire a more significant up-front investment, and service or low-inventoryindustries may enable new business owners to reach profitable status morequickly. Additionally, when evaluating an inventory-based opportunity, it isimportant to determine if the terms of the franchise agreement mandate that youpurchase the inventory directly from the franchisor and, if so, is there amechanism in place to regulate the cost, quality, sourcing and distributiondetails. Inventory requirements can impose a host of complicating factorsbeyond a greater additional investment, including concerns about spoilage andtheft, and logistical considerations regarding storage, shelving, handling,delivery and other possible carrying costs.

Whatare the fees and/or costs to operate the franchise?

Aspiring franchiseesmust consider both up-front costs and ongoing royalty fees when calculatingwhat kinds of franchise-related fees would be acceptable. There is asurprisingly large variation from one franchise to the next in terms of whatkinds of costs and fees are associated with becoming a franchisee, andcrunching these numbers can - for obvious reasons - have an enormous impact onthe entrepreneurial decision-making process. Start-up costs can range from afew thousand dollars to hundreds of thousands or more, and royalty fees andassociated franchising costs range from approximately 4% of revenue on the lowside to 25% or more on the high side.

Whatkind of timeframes are you dealing with?

When evaluatingfranchise opportunities, aspiring business owners should take the time toinvestigate what the typical franchise timeframes are like and how long theycan expect to wait after entering into a franchise agreement before opening thedoors of their new space. While a number of factors can impact this process,established franchisors understand how to assist with site selection, leasenegotiations and the kinds of logistical and technical details (fromconstruction to education and new franchisee training) that might otherwisemake for unnecessary delays. A reasonable time frame for an efficient franchisewith a sophisticated and established new-franchisee support process is around3-6 months.

Doesthe franchise embrace a forward-thinking business model?

In today'sincreasingly tech- and web-savvy world, connecting with a franchise thatdisplays a high degree of technical sophistication and utilizes onlineresources for the benefit of franchisees is critically important to many newbusiness owners. From marketing opportunities through social media and othernon-traditional outlets to powerful new online tools for managing scheduling,finances and other day-to-day operational details, the ability to leveragetechnology successfully is evolving from a luxury to a competitive necessity.Service-based business models are particularly tech-friendly and are generallywell-suited to a business model that seamlessly and successfully integratesonline marketing, scheduling and management components into its operations.

Whatkind of time investment will be required to make this work?

While financing andprofitability figure prominently in deciding what franchise is right for you,it is also important to pay attention to another bottom line: an oft-overlookedbut critical consideration for new business owners is determining what kind oftime investment they are capable and comfortable making in their newprofessional enterprise. For some, the hours are unimportant and there is nosuch thing as too much. But some new business owners and franchisees may prefera more balanced division of personal and professional time. Determine ahead oftime if your potential franchise is able to provide you with the tools to makethat more balanced work/play vision a reality. Ask if the franchisor uses aweb-based operational system and other efficient management tools that make itpossible to run your business from virtually anywhere.

Whatkind of training and support can you expect going forward?

For many aspiringfranchisees, the presence of a robust support network can be a deciding factorwhen determining which franchise is right for them. Experienced and efficientfranchisors are capable of providing what amounts to a turnkey solution; anew-franchisee support system with a full spectrum of material, financial andlogistical support. Ask if a potential franchisor is able to help new franchisees with site selection and leasingnegotiations, provide design, architecture and layout input, or even offerlending assistance and financial resources. The best franchises will actuallysend a support team on site to assist with personalized training, andprospective franchisees should inquire about what kind of ongoing marketing,advertising and public relations assistance the franchise will provide goingforward. The insight and experience of a supportive franchisor can make adefining difference in the success of a new franchisee, and taking the time to getto know your prospective franchisor and ask tough questions before enteringinto a franchise agreement should be a top priority for any responsibleentrepreneur.

John Hoose is founder of Commerce Township,Mich.-based LaVida Massage, a unique health and wellness massage center withfranchise opportunities in all 50 states and in Canada.