Big Risks, Bigger Payoffs: Balancing the Realities of Franchisee Life

Marc-Collopy.jpgPurchasing a franchise requires courage. As many industry veterans will attest, fear is a normal part of the process. It’s understandable, given the realities of the franchise industry: Nearly one in five fail. That’s a sobering statistic.

Also fueling investors’ anxieties are the two major hurdles presented by large franchises: startup fees and the time needed to operate the business. Larger franchises often ask for hefty upfront costs in the form of construction fees, marketing requirements, inventory, and more. Many establishments, once up and running, are expected to operate seven days a week, and that usually requires owner-management commitments.

So why do so many take the plunge? It’s simple: Big risks can lead to big rewards.

No Guts, No Glory

Now that we’ve gotten the risks of investing in a large franchise out of the way, let’s move on to the fun part: the rewards.

Entrepreneur’s list of top franchise investments is largely made up of big brands. Why? The No. 1 advantage of investing in a large franchise is increased odds of success. The math is straightforward: Larger franchises typically have sizable customer bases, a wide reach, and an established, reliable brand. Smaller franchises, in comparison, usually support smaller markets, audiences, and niches.

Another advantage: support. Large franchises often provide franchisees with a wealth of valuable information and aid, as well as access to corporate team members and fellow franchisees. For instance, one of the initial headaches in starting any business is finding the right vendors and business partners. Because larger franchises maintain relationships with high-quality vendors, franchisees don’t have to stress about the research and selection process.

A final upshot to investing in a large franchise involves location selection. Any established brand will have loads of experience in this arena and can help franchisees select a spot that will maximize the odds of success.

Downsizing Your Risks

To reap the riches of franchise ownership, you must plan for the potential pitfalls and take advantage of the support larger brands can offer. If you’re taking steps toward investing in a large franchise, the following strategies will help you mitigate your risks.

1. Ensure the brand is a good fit.

Do your due diligence. Make sure the brand is a good fit, and examine every detail of the business. What are the failure rates? What’s the typical ROI? What’s the company culture like? How much support will the franchise offer? What will your role as owner look like?

Connect with another franchisee in your area. Ask him or her out for coffee or drinks to chat about the realities of being a franchisee under the brand you’re considering. The more intel you can gather, the better you’ll feel going into the deal.

2. Don’t invest alone.

Working with partners and investors can soften the feeling of “going it alone” and lighten some of the monetary risk, too. Having a partner can even improve your business results. When you’re not stressed or trying to constantly do a thousand things at once, you’ll be able to focus more on the customer experience.

When seeking out a partner, try to find someone who complements you. Your partner’s skills should fill in any gaps in your own tool kit. Don’t make the mistake of enlisting someone just like you — you want someone with a different perspective so you can approach problems from two different angles as a team.

Don’t overlook your own family as a source of support. Consider asking your spouse or children to play a role in the operation’s success. Having all hands on deck turns the experience into a rewarding, memorable adventure.

3. Seek out the best loan deal.

Loans help spread the financial risk out over time. Many large franchisors have their own finance companies and are willing to carry a portion of franchisees’ debt burdens. Of course, there are other places to get loans and financing, such as through the Small Business Administration.

Before getting approved for a loan, prepare to have proof of solid collateral and your past work history. Banks will want to make sure you’ll be able to make payments even if things go badly.

4. Select a winning location.

Your franchise location can make or break your business. Attributes of a great location include easy access, adequate square footage, ample parking, an attractive (and safe) neighborhood, and proximity to major arteries. To help reduce your total overhead costs, find a location where the landlord is willing to add tenant improvement dollars.

Fear is a normal part of franchisee life, but you shouldn’t let it be a stumbling block on your road to success. Armed with thorough research, the right partners, and solid financing, you’ll have downsized your risks and can move on to pursuing the rewards of investing in a large franchise.

Marc Collopy is co-founder and executive vice president of sales of Rockin’ Jump, a trampoline park franchise dedicated to combining exercise and fun in a safe, clean, family-friendly environment. Rockin’ Jump currently has 32 locations nationwide, with an additional 80 under construction.

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