Every year, tens of thousands of Americans get into the restaurant business by opening a franchise. These businesses offer owners some built-in perks, including built-in customer base, brand awareness, business assistance, and a lower rate of failure.
Despite these significant pros, however, there are some cons. And just because the rate of failure is lower in the franchise world, that does not mean it’s nonexistent. That’s why, if you are interested in opening a franchise business, it’s important to ask yourself these five important questions.
- How much can you really afford to invest? Whether you are interested in burger franchising or ice cream franchising, one of the first considerations you will need to think about is cost. Initial investments for restaurant franchises begin at around $100,000 and can range upwards of several million. Most fall somewhere between $500,000 to $2 million.
- Can you afford any ongoing fees? With most franchises, the initial investment isn’t your only cost. There are ongoing fees you will need to be able to pay. While researching, be sure you understand the cost of any ongoing royalty or marketing and advertising fee requirements.
- Do you meet the company’s qualifications? Not everyone will be eligible to open a franchise with every company. Franchisors typically have a list of qualifications and personality traits that fit best with their brand. You will need to spend some time researching those qualifications to determine whether you feel your personality and skillset fit within the organization’s parameters.
- Is the company you’re considering strong? You shouldn’t only be evaluating your financial ability to open a franchise. You should also be looking into the financial health of any organization you are interested in franchising with. Look at the franchisor’s most recent financial statements. Ask the franchisor to explain how they have shown steady growth and about their future plans for growth. You’ll also want to explore whether the bulk of their income comes from royalties or the sale of franchises, and whether the franchisor designates an adequate amount of funds to the system.
- What is the success rate? Before you open up any franchise, you’ll want to get a picture of that franchise’s success rate, as well as any information on average income for franchise owners. Look into how many franchises are currently open and do franchise owners receive enough support from the organization. You’ll want to be sure the company hasn’t spread itself too thin.