from Wayne Maillet, President, Franchise Specialists.
A year ago a good friend asked me to assist her in researching an independent distribution business which was for sale. It was a business that had been established for 10 years, had 6 long term employees, several long standing clients, and was profitable.
I assisted my friend in reviewing the financial statements. The business would be able to support 100% financing and still provide her with a $100,000 salary. She could take the equity in her home and leverage this for the financing. The owner was retiring and was prepared to stay on as a consultant for 1 year to ensure a smooth transition. It sounded like an ideal opportunity. A lawyer was hired to draft the purchase and sale agreement. The lease agreement and other documents were reviewed.
Negotiations went back and forth regarding the details of the loan payment. After much discussion, the seller was willing to provide a 5 year loan but if the sales dropped to a certain level, loan payments could be deferred until cash flow improved. The terms were good and yet after one and half years of negotiations and substantial legal bills, my friend could not move forward and walked away from the deal. She decided that entrepreneurship was not for her. When I asked her why, she stated that she was simply not willing to take the risk.
Over the years I repeatedly see people who are looking to get into business for themselves who spend considerable time and effort doing due diligence and research but in the end simply do not move forward. Some, I come across a few years later still looking at opportunities but still unable to make the final commitment. They are looking for a business that has no risk. Such a business does not exist.
The road to entrepreneurship is one that offers many appealing benefits:
- There is a pride in building something of your own.
- You can control your destiny, are able to have greater flexibility with your time.
- With hard work can build substantial income.
- Once your business is established you will have greater flexibility to create a work/ life balance.
- You can built up an asset you can sell or leave for your children.
And yet despite all of this, many cannot overcome the element of risk. The economy is at best, unpredictable. You may be faced with an economic slowdown that could seriously impede your business success. There is the risk of the market and possible saturation of competitors, making it hard to win over and keep customers. There is the uncertainty of getting involved in an industry that you are not familiar with and dealing with a potentially steep learning curve.
During this learning you will inevitably make mistakes that could be costly. There are the challenges of dealing with managing employees while still learning a new business. Finally, there is the financial risk. Entrepreneurs must in most cases be willing to loose everything. As a new business owner you must have sufficient funds to carry your personal living costs, the business start-up costs and initial working capital needs until the new venture begins to turn a regular profit. A miscalculation in your financial projections could leave you substantially short and in possible financial ruin.
It is for these reasons that franchising has been so popular for entrepreneurs. With a well positioned franchise you can minimize your risks. Franchising offers the following benefits:
Becoming a part of a brand.
You can start your business with a customer base already established. Today’s consumer is brand driven. They want to go where they know what to expect. If they see a name over and over again they begin to have comfort with that company and will frequent that place of business. It results in disproportionate market share. This market share is often taken from the independent. Brands help to attract customers.
Having access to systems.
All successful franchises are based on systems. Clearly defined procedures that are duplicated will produce consistent, reliable results and experiences for the customer. Systems include operating standards which define quality. Rather than spending time learning through expensive trial and error you can capitalize on the experience of the franchise system and all of the franchisees that have come before you.
Working with a proven business model.
There is an old philosophy that if you want to be successful then watch and copy successful people. Imitate them. Likewise, watch what unsuccessful people and don’t follow their example. This eliminates you learning the business through trial and error. Working with a proven business model can save a startup operation a considerable amount of money and frustration. Costly mistakes like choosing the wrong equipment or suppliers are avoided. Working on the business rather than in the business. Business involves a lot of details. For example, an independent restaurant owner will spend a considerable amount of time developing menus and keeping the menu fresh, implementing marketing strategies, monitoring the competition, making sure the business is in compliance with all the laws and food safe procedures. With a franchise you have the support of a franchisor that will often do these functions, thus freeing up your time. Rather than doing research and development you can spend your time implementing and building relationships with the customer. You are able to focus your energies where they can have the biggest impact to your immediate bottom line.
Having mass purchasing power.
In business one needs to be managing carefully costs. A franchise allows one to take advantage of volume buying of inventory and supplies by pooling the purchases of multiple locations. This often results in stronger bottom lines. Advertising on radio and/or television would not be practical or cost effective for an independent, yet is easily attainable when belonging to a franchise where franchisees pool their financial resources together.
Having a strong support network – on your own but not alone.
When you are the owner of your own business it can be lonely at the top. If you have a challenge or operations issue, you simply can’t pick up the phone and call your competitors to see how they would deal with the situation. Within a franchise there is the opportunity to talk to others that have had the same challenges and get open feedback and ideas. The franchisor has a vested interest in the business and brand and they will be more than glad to help. You have access to support that you would not have otherwise.
All of these advantages combined contribute to reducing the risks of getting into a business. Many failed businesses could have been avoided if they had not had to learn through trial and error. You stack the probability of success in your favor with a recognized brand, buying power and a proven business model. Having the programs, systems and tools to be successful will not give you guarantees, but sure go a long way in providing comfort and minimizing the risks.
A franchise may provide you with the needed confidence to finally take action on your dream of becoming an entrepreneur and having your own business.
Wayne Maillet is a leading Canadian franchise management consultant with over 25 years of practical experience in all aspects of franchise operations. Respected within franchise circles, he brings a realistic, practical understanding of business and franchising. Wayne Maillet has spoken across Canada, including lecturing at Queens University, written several articles and is often quoted as an authority in franchising. He mixes practical experience with an academic understanding, having earned his Bachelor of Business Management Degree from Ryerson University and was recognized for outstanding academic achievement in management and enterprise development.