I’ve been in the franchise industry for 20 years. I’ve purchased, built and sold my franchises. Over the past 14 years, I’ve coached more than 1,500 people who were searching for the best franchise for their situation. I recently read the 2019 Small Business Trends study, conducted as a joint venture by Guidant Financial and Lending Club.
With my professional experience in mind, I was delighted to see that some of the insights brought forward in the study were negated misconceptions about franchise ownership. Two of those findings included:
• Women are more likely to start a business or franchise location than buy a pre-established one.
• Most new franchise startup acquisition costs range between $50,000 and $175,000, not $1 million.
From these findings, I also was reminded that following your gut in business is critical in the beginning. Below is my advice on how this insight can inform your start as a franchisee:
1. Women like to start from scratch.
According to the Small Business Trends study, 58% of women are "starting their business from scratch," the number of women-owned businesses grew almost 60% between 2007 and 2018, and nearly 40% of African American small-business owners are women. And the number of women-owned franchises just keeps growing.
Some cite a flexible schedule as a reason for women's interest in franchising. Others, myself included, believe the relationship between the franchise corporation and the franchisee is far more cooperative than between management and staff in many corporate America firms. Many women still face inequality in the workplace, and owning a franchise can remove office politics and give the owner a chance to grow based on their own hard work. Franchising can be an equalizer for people trying to get ahead in life.
In a great franchise model, extensive support is also offered to franchise owners, as opposed to the entrepreneurial or self-startup model where the owner is on their own. Owning a franchise is like having a business with training wheels. Thus, the franchise model might be a more inviting option for some, as it provides an easier entry into the small-business trade as opposed to the personal startup route.
No matter your reasoning, there are a few things to keep in mind before embarking on a franchise for the first time. For example, franchise companies often give owners in-depth training and ongoing industry coaching, so there generally is no need for industry experience. Industry experience can often translate into bad habits. So, I've seen that often, the franchisor would rather teach a new franchisee best practices from the start. If you’re thinking about franchising, look outside of the box. When you broaden your thinking, I believe you’ll be surprised by your options.
2. You don’t need a million dollars.
The Small Business Trends study also found that 69% of franchisees' acquisition costs were less than $250,000. I've observed that an incorrect assumption made by many people is that a franchise will cost them over a million dollars. While this might be true for large concepts, such as fast-food chains, it is by no means true for all franchise outfits.
There are concepts that do not require a store-front and are operated from a home office, which can help save on costs. These service-based franchises, in my experience, can often be opened for less than $100,000. If you'd prefer to invest in a retail store, you can aim for between $200,000 and $300,000.
However, there are additional costs you must consider. According to the Small Business Administration, "Today’s franchise fees range from $20,000-$50,000, unless you’re considering purchasing a Master Franchise." The SBA is a great resource to help you understand the finance programs available in the United States. The association's website has information on financing options and even explains how to write a loan proposal.
In the end, trusting your gut is critical.
While reading reports and completing due diligence on a business is paramount, I have found that many successful entrepreneurs and executives say they also go on intuition. One study from 2016 found that more than 40% of executives rely on their intuition when making a decision. Of course, research and planning are definitely integral parts of starting a business, but be sure to trust your instincts. When you imagine yourself in the proposed business, you need to have a positive “gut reaction.”
I relate this feeling with that of purchasing a home. You might have looked at dozens of houses, but you likely know when you walk into "your home." It's a gut feeling, a peaceful sensation that is felt under all the nerves of making such a huge purchase.
This is why I believe it's important to trust your instincts. You could face resistance as a new franchisee. I've seen that some people who consider starting a business often reach out to friends and family for advice or financial help. While that can be a helpful strategy, sometimes, your loved ones could project their own fears and discourage you from pursuing your goals. This can then lead to doubt and prevent you from chasing your dream, all based on someone else’s opinion.
Others' ideas can be helpful because they're helping you think through unseen issues. But, avoid seeking validation from anyone but yourself. Occasionally, people hire lawyers and begin to seek validation from them. While outside professionals can be immensely helpful regarding the technical side of your business, many professionals, in my experience, won't tell you if they think the business is viable or not. You’ve done the research, so you should trust your own due diligence and instincts to determine whether starting your own business is right for you.
As a society, we are taught to play merely not to lose. In order to succeed, however, you must play all out to win. With the help of outside resources and your own gut, you can be assured that you have access to the tools you need to succeed.
