An increasing number of people are getting into the franchising business and the reasoning behind it is quite sound. The franchisee gets to start a business without worrying about branding or building a customer base up from scratch. Rather, they leverage the brand of the franchisor and benefit from an established business system. The franchisor, on the other hand, gets an upfront payment and a percentage of revenue (or profit) made by the new business.
This seems like a beneficial business arrangement for all parties. However, Glenn Sandler, CPA, Founder of G.I. Tax Service, has some questions for prospective franchisees—since they carry most of the risk in the undertaking. According to Mr. Sandler, these questions will better help them understand if franchising is a good fit for them and if they are ready for the intricacies of the business model.
Are you prepared for the challenge ahead?
Since they already have a business model to replicate, franchisees often believe that most of the hard work vis-à-vis building the business is done. Nothing could be farther from the truth. For your franchise to be successful, you need to put in as much work as you would if you were starting a new business. Yes, you have the backing of a known brand. The expectation, however, is that your products and services will meet the standards of your franchisor. Failure to do so will lose you customers quickly and before you realize it, you could be spending a lot more on marketing than anticipated. Before you buy that franchise, understand the challenges involved, and be sure that you are prepared for them.
Do you have adequate financial backing?
Franchising is very capital intensive and people without extensive financial backing often fail to survive in the business. In addition to paying the franchisor, you also need to cover start-up expenses and operating costs, recruit and pay employees, etc. As a result, most franchises don’t start returning profits until after a year (or longer). Franchising is not ideal for people looking to make a quick buck; there is a long roadmap before business viability and it requires a lot of capital.
How well do you work in a system?
“The true essence of franchising lies in following the system laid down by the franchisor,” says Glenn Sandler, CPA. If you don’t follow the system, then you are basically operating as an individual business and you are unlikely to find sustained success. Franchises thrive on consistency and the willingness of the franchisees to work with a business model that was designed by another person. If you struggle to work with people generally, then you will struggle to combine effectively with your franchisor, your fellow franchisees, employees, and even your customers.
Will you enjoy the process?
This is a business-model that requires you to spend a lot of money, defer to a higher authority, work in a system, and it usually doesn’t return profits until a few months have passed. Not many will find this business enjoyable and this is the reason why only 20% of franchises will be around 20 years from inception. To succeed, you must enjoy the journey and be able to maneuver through the challenges you’re sure to face.
If after answering all the questions above, you still believe you have what it takes to be a great franchisee, then dive right in. The journey may be difficult, but the returns are surely worthwhile.
About G.I. Tax Service
Founded in 2013 by Glenn Sandler, CPA, G. I. Tax Service is America’s premier provider of year-round tax preparation and financial services including tax planning and small business formation assistance. G.I. Tax also reaches out to military vets with turn-key franchise opportunities. G. I. Tax Service believes in corporate responsibility and is active in a variety of local charities that help military families.
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