Category Archives: Qualifying for a Franchise

Want to Be a Franchisee When You Grow Up?

young businesswomanYou’re probably here at America’s Best Franchises because you’re interested in owning a franchise business. We have a phenomenal selection of franchises to explore, including new franchises and inexpensive franchises. With just a few clicks, you can get information about a broad range of franchise business investments in your price range, in your favorite industry, and in your geographic location.

We also have plenty of great free advice. If you’re ready to buy, we can help you choose the right franchise for your needs quickly and efficiently.

But maybe you’re looking toward the future. Maybe you aren’t ready to own a franchise right now, but you know that you want to own your own business and you want the advantages of a franchise business: a proven system, support and training, and name recognition right out of the gate.

What should you be doing if franchising is in your future?

  • Learn about business. You can get great training on how to groom a dog or hire someone who knows how to refinish cabinets, but knowing how to run a business will give you an advantage with any franchise. Marketing, team building, managing people, and handling finances and paperwork are all skills you’ll need for most franchises.
  • Get comfortable with computers. Many franchisors provide software that helps you manage your franchise. The more at ease you are with your computer, the better that software will work for you.
  • Get comfortable with selling, too. Though many franchisors say that there is no selling involved in their system, they often mean that “the product sells itself” — in other words, they have confidence in their product. That doesn’t really mean that no selling takes place. You have to be able to present your product well and convey the product’s value if you expect people to give you money. If you don’t want people to give you money, then there really is no selling involved.
  • Get some money in the bank. The time between deciding to invest in a franchise business and having enough profit to live on may be longer than you expect. Most businesses also have some slow times. You need to be prepared to keep the doors open even if there isn’t much money coming in at first. That’s much easier if you have some funds socked away. Franchises also have net worth requirements, so you’ll have more options if you have more savings.
  • Try out some different things. Job-hopping can be a negative for employers, but you owe it to yourself to learn more about the industries that appeal to you in the franchise world. Think you want to own a restaurant? Pick up a shift at a local fast food place and see if you can take the heat. Interested in a tutoring franchise? Volunteer with your local Literacy League or elementary school.
  • Get to know yourself. Often, the key to franchise success is a good fit between you and the franchise. The more you know about what you like and dislike, what you can do well and what you can’t, the better you’ll be able to make that fit. Pay attention to what rubs you the wrong way at work and what makes you feel good. Better yet, make a list. Write down what strengthens you and what makes you feel weak. Self knowledge will help you make the right choice when it’s time.

Becoming a Franchise Business Owner: Sharing Information

open bookIs your life an open book? In some ways, it has to be when you decide to become a franchisee.

Franchisors share quite a bit of their financial data with you during discovery and in the official disclosure document. They also expect you to share financial information with them.

That might seem a big more personal than your looking into their financial data. After all, you’re considering buying from them and they’re usually not financing your purchase. Why should they be want all that personal data about you?

Actually, when you set out to invest in a franchise business opportunity, you’re applying to become a franchisee. It’s essential for the franchisor that you should be a good representative of their brand. It’s in their best interests for you to succeed, too.

Successful franchisees bring revenue to their franchisor. Unsuccessful ones may not even provide a good return on the investment the franchise makes in them. The initial franchise fee may not actually cover the full value of what you receive from a franchisor. Not only are they providing you with a system that works and the right to use their name, they’re also providing a lot of things that an independent business would have to pay for up front.

Some of the things franchises may provide for their new franchisees:

  • training
  • consultation
  • legal support
  • negotiation with landlords or vendors
  • uniforms
  • marketing materials
  • initial inventory
  • tools and equipment
  • software
  • hardware
  • operating documents, including legal documents such as HR forms and client contracts
  • network contacts, special pricing, etc.

Add up the products and services that a franchisor puts into preparing a new franchisee, and you can see that they’re making an investment just as you are.

While franchises are less likely to fail than independent start-ups, they can fail. One of the main reasons for failure in all businesses is undercapitalization. It takes time for a business to become profitable, and there are plenty of up-front costs, in addition to daily operating costs while the company is getting on its feet.

There are also slow times in any business. These may be seasonal, they may be in reaction to macro events like weather, changes in the price of fuel, or even political events that affect consumer confidence.

Many new companies cut corners on marketing when they feel a financial pinch, and franchisors know that this will affect the long-term success of your franchise. Certainly, cutting corners on the quality of goods and services or delaying payments to vendors can result in negative consequences for your franchise and for the reputation of the brand as a whole.

Franchisors look at the background and experience of prospective franchisees, but they also need to be sure that you can support the franchise through lean times. A franchise that doesn’t have enough financial stability to keep the doors open through the early months or during slow times can damage the franchise and provide a poor return on investment.

So be mentally prepared to give franchisors access to your financial information, and take some time to get your financial affairs in order as you research franchise opportunities. That way your financial life can be an open book.

Net Worth Requirements and Franchise Opportunities

BY BILL BRADLEY, Founder/CEO, America’s Best Franchises

January 31, 2013

Almost every franchise has a net worth requirement for franchisees. Before being considered for the franchise investment, you might have to prove that you have a net worth of $100,000 or some other amount. Some large franchises require even larger net worth — into the range of $300,000 or more.

This can be frustrating for some franchisees. You have enough to buy in, and you plan to invest in order to make more, right? Why should you have to prove your net worth first?

The most obvious reason for net worth requirements is to ensure that the franchisee has the financial health to open a franchise. Parent companies know that it can take time to make money, and they don’t want you to be limited by a lack of capital.

Another– not as obvious– reason is to protect you, the franchisee. If you open a franchise and it fails, costs can really add up quickly.

Reasons why Franchisors look at net worth:

Money Management Skills

Being financially solvent and having liquid assets in excess of a certain amount shows a franchisor that you know how to manage your own money. While it doesn’t necessarily mean you know how to manage other people’s money, franchisors assume you will treat the franchise as you do all your other assets. People who can manage their own money well have a higher chance of success than people who have low liquid assets or who have declared bankruptcy a number of times.

Market

Franchisors care a lot about potential markets. If your neighborhood contains some people with a net worth of a certain amount, the likelihood is that there are other potential customers of a similar level of net worth. These are the markets where the parent company feels they’ll do well.

Experience

When franchisors require exceptionally high net worth, it is because they expect you to have made money through other enterprises. They are looking for franchisees with experience operating a business rather than inexperienced individuals.

What Franchisees should look for:

Appropriate Net Worth Requirements

Very low net worth requirements can mean that a franchise is willing to accept a lot of franchisees, knowing that not all will succeed. If you can meet a higher net worth requirement, you might be better off with a more demanding parent company. If you know that you have the personal characteristics to succeed, even without much net worth, you can choose a company with lower requirements.

Preexisting Franchises

You can often buy an existing franchise and avoid net worth requirements altogether. This can mean that you have a business that’s ready to run from day one. Of course, it can also mean that you have a business that has already made mistakes. Look closely at this option before you invest.

Using Investors

If net worth minimums are a problem for you, you can partner with other investors who have more liquid assets than you do. You might be able to provide more of the work and let your partners benefit by letting their money work for the business.

As with any decision concerning your investment in a franchise business opportunity, you can make the best decision when you fully understand the opportunities. Use our simple Franchise Bulls Eye search tool to find the right franchise opportunity for you.