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Is a Franchise Right for You? Ask Yourself These Questions

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By Caroline McMillan Portillo

franchising_arrows(MCT)—The word of the day was “fit.”

And if you’re considering whether to buy and run a franchise, there are several “fit” criteria you need to consider, according to a group of five panelists who spoke at ShopTalk’s breakfast event Tuesday—all discussing what’s involved in taking that route to small-business ownership.

The event, called “Franchising: Picking the one right for you,” drew a sellout crowd of more than 120 people. Most of the attendees were considering whether to buy into an existing brand and business model or go at it on their own.

The panel of experienced entrepreneurs offering advice ranged from the man who initiated TCBY’s self-serve trend, to a former Carolina Panther who opened Charlotte’s first Tropical Smoothie Cafe, to a franchise expert who’s worked with hundreds of prospective and existing owners.

According to our panelists, ask yourself these three questions before deciding if buying into a franchise is the best fit for your path to entrepreneurship:

Is your nest egg flush and secure?

Before you even begin considering whether a franchise is the right business to own, consider whether becoming an entrepreneur is even right for you, says panelist Randy Mitchell of The Entrepreneur’s Source, a franchise itself that offers business coaching to franchisees and prospective franchise owners.

And a lot of that is going to come down to financing.

When you buy a franchise, you have to pay an upfront “franchise fee.” The one-time fee is in exchange for the rights to a protected territory and all of the training and materials that are involved in opening the business – “the knowledge, the training, the secret sauce,” Mitchell says.

Those fees can range between $20,000 and $50,000, Mitchell says. Some can be lower, but rarely are they higher.

Then there’s the rest of the investment: building out a store, buying inventory, marketing, hiring and more.

So for a store-front business, you’re usually looking at a total investment of about $120,000, Mitchell says. But it can be well under $100,000 for a mobile or home-based franchise.

Then, most franchises require that you pay royalties, usually a percentage of sales.

You don’t have to have all of that money in the bank, the panelists say, but financing isn’t always easy.

Sue Gilbert, who opened the Charlotte area’s first Nothing Bundt Cakes franchise, says she and her husband were able to take advantage of a program through Guidant Financial that allowed them to roll her husband’s 401(k) savings into the business, which had startup costs of about $300,000 to $400,000.

Do you prefer blueprints or innovation?

Gilbert says the prescriptive nature of the Nothing Bundt Cakes franchise model was one of the key reasons she was attracted to it; it took the guesswork out of the business strategy.

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