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Entrepreneurs as Franchisees

By FranChoice Blog | Jul 31, 2019

entrepreneurs as franchisees

A popular misconception in franchising concerns entrepreneurs as franchisees. Are franchise companies looking to recruit “true entrepreneurs” as new franchisees in their systems? Not necessarily.

What is a “true entrepreneur?”

Before looking at entrepreneurs as franchisees, let’s narrow in on the type of entrepreneur we are talking about. “True entrepreneurs” are those relatively rare individuals who are willing to go way out on a limb in terms of taking the risks associated with starting a new business. They have supreme confidence in their ability to overcome whatever obstacles arise as they journey build their business.

True entrepreneurs tend to shoot from the hip. They’re willing and able to create new solutions or change their business model on the fly. They may resist being told what to do. They’re wired to make all important decisions for themselves. Some consider them the epitome of the American form of capitalism, and they are a relatively rare breed.

Are true entrepreneurs desirable as potential franchisees?

The type of entrepreneur described above greatly contrasts with what most franchise companies are actually looking for in a franchisee. Strong franchise companies undertake years of trial and error perfecting their model. Their experience enables them to determine exactly how a new franchisee should launch and operate a business in order to be successful. They aren’t looking for people who want to blaze a new path or reinvent the wheel. They want people who will excel at executing the specific plan the franchise company sets forth.

The advantages and benefits of owning a franchise (vs. an independent start-up business) include less risk, a proven game plan to follow, a support team in place to consult for advice, and peace of mind in knowing how to overcome challenges. The problem for a true entrepreneur is that there may be little opportunity for self-expression, especially in the early stages of building the business.

The differences between owning a franchise and starting your own business

If you have strong entrepreneurial traits, you may still make a great franchisee. However, it’s worthwhile to carefully consider the differences in operating a franchise and an independent start-up.

Trading some of your freedom for less risk

Many entrepreneurs who contemplate owning a franchise have already tried launching their own business. They’ve paid their dues and learned first-hand just how difficult and expensive the process can be. If you’re in this category, perhaps you may be willing to forego some of your independence in exchange for less risk. Owning a franchise often comes with a greater likelihood that your new business will succeed. Are you comfortable with this trade-off?

The security of a proven system

As much fun as it is for an entrepreneur to “wing it” in operating their business, it can also be very stressful. If you’re on board with following a clear and tested roadmap for bringing the business to market, owning a franchise can offer less stress than starting up your own business. But make sure to conduct a thorough investigation when deciding what franchise system to join. Having a clear understanding of the rules you’ll be following will help you avoid frustration as a new franchisee.

Opportunities for personal expression

Even though good franchises are very regimented, they may have opportunities for franchisees to express their thoughts about system improvements. Ask whether the franchise company has franchisee advisory groups, such as those involved in marketing, operations, or technology. These types of opportunities can offer a great creative outlet.

Opportunities for innovation

Many of the most important innovations in franchise systems are developed and tested by franchisees, in conjunction with the franchisor. Entrepreneurial franchisees can often participate in the development and testing of potential new products and services, an important growth area for any franchise. Take note that these opportunities usually come along only after you’ve proved yourself as a franchisee who executes the system as instructed. When researching franchises, find out what avenues exist for innovation and ask yourself whether they suit your needs.

Entrepreneurs as franchisees: how to succeed

Good franchisors want their franchisees to succeed. They’ve developed a proven business model for just that reason. Most have seen the struggles of franchisees who deviate from the model. If you are entrepreneurial but willing to hold off your natural inclination to make changes, at least until your business is established and running well, you may be well suited for franchising. It’s very important to be upfront about your intentions and expectations, so you’ll find a system that’s right for you.

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How to create a franchise business plan

By FranChoice Blog | Jul 25, 2019

franchise business plan

If you’re considering the purchase of a franchise, you’re probably exploring financing options. And an essential part of that process is the preparation of a franchise business plan. It’s likely the first thing a lender will ask you for. Take note that even if you’re not seeking outside funding, developing a plan is worthwhile. Here’s a look at what’s involved.

Readily available information and data

Preparing a franchise business plan is a lot easier than preparing a plan for an independent startup business. This is because you have easy access to much of the necessary information. During the sales process, the franchisor typically provides a great deal of verbiage you can use for the narrative sections of the plan. And you can find much of the required financial information in the earnings section of the Franchise Disclosure Document (FDD).

In addition to the typical sections in any business plan, a franchise business plan will include a section outlining the track record of and support available from the franchise company. You may include items like the franchise company’s sales brochure or FDD as attachments to your plan. This additional information can give lenders a higher degree of confidence in your likelihood of success.

5 sections of the business plan

The format of a typical business plan, whether it’s for an independent business or franchise, usually includes the following 5 sections:

Introduction

This describes the business, including the products or services the business offers, the size and competitive aspect of the market, the operational approach that will be used, and the challenges and risks associated with start-up.

Management section

This section identifies and provides background information about the people in management roles. It might include their resumes or descriptions of relevant prior experience.  A franchise business plan also provides information about the franchisor’s direct support staff.

Marketing section

Here you define your target customers and how you plan to attract them to your business. This section explains the business’s competitive advantages and details marketing and advertising plans.

Pro forma financial projections

This section includes income statements, cash flow statements, and balance sheets that project the anticipated financial performance of the business. The statements should specify all material assumptions used to prepare the projections. Prepare these projections on a very conservative basis in case unexpected delays or challenges arise.

Financing needs

Even if you are self-funding the business, always prepare a section related to financing needs. This should include an analysis of all startup costs, including working capital to cover initial marketing plans and operating losses until you reach the projected break-even point. Even if you’re not borrowing from an outside source, the process of developing this section will prepare you for what’s to come in starting up the business.

You should be able to find much of the information you’ll need for the Introduction and Marketing sections on the franchisor’s website. The FDD will help you complete the Financing Needs portion of the report and, if the franchisor publishes a representation of earnings in Item 19 of the FDD, you may be well on your way to completing the Financial Projections section as well.

A helpful and worthwhile process

Some franchise companies require prospective franchisees to start and/or complete their franchise business plan prior to being approved. In any event, it’s a good idea to start thinking about your business plan early on. The process of preparing the plan is helpful in many ways. It forces you to consider options and formalize your projected course of action in the new business. You’ll typically identify questions during this process that may not have otherwise occurred to you. Contact the franchise company to get answers and make sure you have a clear understanding of the franchise prior to making a final decision to proceed.

Remember to update and finalize your business plan after completing the franchisor’s initial training. After training, you’ll have a far greater understanding of aspects like operational and marketing plans for the business. Most franchisors will also provide financial data that you can use to double-check, or even replace, the Financial Projections section of your business plan. Review your entire business plan based on your new knowledge, and you’ll be as prepared as possible to get your new franchise business up and running.

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