Making the decision to get into business ownership is an important one. Choosing the right franchise that will work for you is equally important.
Franchising is a reliable business model. However, not all franchises are created equally.
When you are considering buying a franchise, there are three things to contemplate.
Your financials will determine what franchise type of franchise you will buy. Franchises can range from less than 100k to over multi-millions; depending on the type of concept you are interested in.
You will have to consider your net worth and cash liquidity are some of the key elements in determining what you may qualify for.
I have seen clients who have had to change the business they are passionate about and invest in a completely different industry because of the investment required to get involved.
There are banks that are willing to offer Small Business Loans. However, they are rarely ever willing to do 100% financing.
2. Type of Ownership Model
The type of ownership model is very important when looking at different types of franchises. You will have to decide how much time you would like to spend working in your business. You will need to consider how much energy is required to run an effective business.
Answering these questions will better prepare you for the right type of ownership model.
You should consider if you are prepared to be in the business full time, part-time, or if you are an investor.
The first model is the Passive Ownership Model. This model allows for an investor (or franchisee) to hire a manager to run the business 100%.
The franchisee has the investment to put into the business but does not necessarily want to be involved on a day-to-day basis. This works well in some instances where the franchisee is not well versed in industry and is not interested in becoming an expert in the business. Therefore, hiring a manager to operate the business is the best solution.
Serial entrepreneurs and investors find this model very appealing.
The next model is An Owner Operator model. This model requires the franchisee to be involved in the business day in and day out. Most franchises fall into this category.
The main reason is that new entrepreneurs who are buying their first business, will need to spend the majority of their time learning about the business, the franchise, and the opportunity. In this model, the owners are usually passionate about the business concept and enjoy spending time in the business.
The third type of ownership is the Semi-Passive Ownership model. This type of ownership model allows the franchisee to be involved partially. Typically between 10-20 hours per week. With this model, the franchisee will usually have a manager who will do most of the day-to-day management of the business.
This model is great when you are venturing into entrepreneurship for the first time and you are not ready to venture into your franchise ownership full time.
3. Home based vs. Bricks and Mortar
If you are looking for a lower investment, a home-based business is a way to go. Some would-be investors would have less than $150,000 to invest. As a result, bricks and mortar may be less than achievable.
There are definitely pros and cons to each.
A home-based business is easier to get into due to the cost. There is also no extra overhead operating cost. On the other hand, due to the low barrier to entry, home-based businesses require more advertising or in-person networking to get your name out there.
Bricks and mortar franchises will cost more to buy due to the general construction, and leasing cost required to build a new store. However, with a physical location and a storefront, you are able to attract immediate customers. This helps with generating immediate sales and growth of your business. Most of the established brands often run bricks and mortar locations.
Which of these three do you consider the most important?
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