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Going Into Business for Yourself

General Business News

May 2007

Going Into Business for Yourself

According to American Dream 101, one of your goals in life should be to own your own business - aka ‘be your own boss’. It’s a daunting goal, especially when you consider the cost of starting up a business these days. Add to that the uncertainty about how the new business would be received and it’s hard to gather the courage to place your life savings, and your family’s welfare, at the mercy of a start-up operation.

Business start-up costs can’t be helped and, to a great extent, are fixed, but there is a way to reduce the uncertainty involved in starting your company. While you can’t eliminate the risk of the market rejecting your product, you can minimize it by purchasing the franchise of an already successful business. This month, we will be talking about how to decide if owning and operating a franchise is right for you.

The place to start the assessment is about your temperament. Remember, one of the reasons you want to start a business is to be your own boss. Does that mean you simply want to reap the rewards of your hard work - or do you really not like doing things any way but yours?

If you don’t like to be told what to do, think very hard about owning a franchise. There is a reason that franchisors are successful and one of those reasons is reputation. A good company won’t risk its reputation on a maverick. That’s why franchise agreements require the franchisee to adhere to various corporate standards. These may include store layout, advertising policies, methodologies, etc. In the franchise arena, you can’t simply buy a name and then go it alone.

Let’s say you have the temperament to work well in a franchise environment; how do you find the right franchise? First, look for something that fits your interests. Maybe all you really want to do is make money, but if you go into a business just for income, you will ultimately pay an emotional price.

While there are numerous sites on the Internet to research franchise opportunities, the following are a few found from a quick search:These are examples only and not meant to be endorsements of these sites.

After you have determined the potential franchise or franchises that interest you, contact the franchisee relations department of the company. Arrange appointments to visit their headquarters and talk with corporate executives. Try to get a handle on the corporate culture and its commitment to the success of the franchisee. You may not see these people on a day-to-day basis once you buy the franchise, but their advertising and operational decisions are going to have a big effect on your life.

Obtain financial information on the franchisor. Look to see if it is strong enough to provide the services you will be paying for, including advertising and other operational support. The two biggest assets you will receive from a franchise are 1) name recognition and 2) proven operational methodologies. If a franchisor is in financial difficulty, the royalties and advertising payments you make to them might not go to their intended purposes.

Discuss your particular market with the franchisor. Typically, they have a set of criteria that will help you determine the likelihood of success. Take advantage of the franchisor’s knowledge of the marketplace, but temper that with your intimate knowledge of your intended business area. Sometimes, a concept is successful nationally, but your hometown may not receive it well.

Talk to other franchisees. Franchisors are prohibited from making financial claims, which makes it difficult to evaluate your income potential. Other franchisees, however, are not precluded from sharing their financial information with you. Find franchisees that operate in a market similar to yours and spend some time digging into their results. Since you won’t be a competitor, most of the time you will find other franchisees to be cooperative. Try to get information from around 20 of them if possible.

If you do decide to purchase a franchise, your next step will be negotiating terms with them and finding the financing to start your business. Whether you plan to approach a bank, or self-finance, make sure you develop a business plan covering at least three and possibly five years.

Finally, don’t expect building your business to be easy just because you purchase a well-known franchise. Even with all the support you receive from a franchisor, you can expect to put in long hours, especially for the first three years. Make sure that you and your family are both ready for this commitment.

Are you thinking of striking out on your own as a franchisee? With the number of franchisors today, you are likely to find the right fit for you, but remember: even with a good concept, the numbers have to work as well. Before committing yourself to making a major lifestyle change, give us a call. Let’s talk about the concept and the numbers to assist you in making an informed judgment about your potential business.

Have a great May!
 

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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