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Franchise Buying Guide

Setting Goals for Franchise Success

Presented by Guidant Financial
Guidant Financial specializes in helping entrepreneurs purchase new franchises using their retirement funds.

This article was excerpted from Street Smart Franchising, which is available from our Entrepreneur Press bookstore.

Before you research any franchises, you should set three- and five-year goals. Goals must be both financial and "quality of life" (or non-financial) in nature. Financial goals should take into account cash flow, savings, net worth, equity build-up and spendable income. Quality of life goals should consider lifestyle issues that are important to you, like having dinner at home three nights a week, being able to take vacations, attend soccer games, make a difference in the community, and so on.

Don't overlook quality of life goals or you're setting yourself up for dissatisfaction. Quality of life goals are more important that financial goals. Why? Because many people who invest in a franchise have already made a decent living in the past. Aside from earning a paycheck however, they couldn't find a compelling reason to go to work in the morning. Money alone wasn't enough to keep them going, and money will not hold your interest long either. While you will have some minimum threshold of earnings which you won't dare to venture below, once that threshold is exceeded, you will find that quality of life becomes the driver.

Virtually all franchisors have key performance criteria that help you and the franchisor determine whether or not your business is winning. You will be taught how to track sales, labor costs, cost of sales, and other statistical measures. Franchisors design their business and support systems to help you structure your business to achieve these measures and monitor results.

However, we know of no franchisor who measures how many means you've eaten with your children or how many of the kids' soccer games you've attended. Franchisors measure your success by their definition, not yours. Most franchisors have no clue as to whether or not their "successful" franchisees are living the life they originally desired when they invested in a franchise. Franchisors follow the money. And as we've already stated, money won't hold your interest long.

Additionally, in order to secure SBA loans, bank financing, financial support from your family, or other forms of financing, chances are you will need to write and submit a business plan or cash-flow projections to the parties from whom you're seeking financing. In your plan you will detail the tactics and strategies you will execute to drive the sales, contain the costs, maximize the cash flow of your business, and repay your loan. To succeed in business, you have to generate money.

Imagine that you're in business, money is tight and you are two months late on loan payments. The loan officer calls you to see what happened. You tell the loan officer that while you don't have the money to pay the two installments, you did attend all your kid's soccer games this month. Most likely the loan officer will sarcastically reply, "Congratulations. I'm nominating you for parent of the year. Where is my money?"

Like the bank, the franchisor also wants its money on time. Franchisors, like banks, are as focused on achieving their own financial goals as you are in achieving your complete and total definition of success. We're not saying this is right or wrong, it's just the way it is. If you were to list and prioritize the many reasons you're looking to start a franchise, where does "Helping the franchisor exceed its corporate objectives" show up on the list? So you want yours, the franchisor wants theirs, the bank wants theirs, and the world turns.

It's solely your responsibility to create a clear definition of the financial and quality of life goals that define what winning looks like for you. Use your definition of winning as your criteria to compare various franchise opportunities. The franchise where you have the highest probably of attaining both your financial and quality of life goals is the franchise you make an investment in.

It's easy to lose sight of your goals. Prospective franchisees often get caught up in their perceptions of the problems and challenges of the business rather than whether or not the franchise can help them achieve their objectives with a high degree of probability.

For instance, you may be investigating a residential home-cleaning business and from talking to franchisees you hear there is a high employee turnover. Afraid that you might get stuck cleaning houses, you think, "I didn't go to college so I can clean toilets and vacuum carpets." Your knee-jerk reaction is to dismiss the opportunity. However, whether or not there's employee turnover isn't' the real issue at hand. Given employee turnover, your focal point should be whether or not you can still achieve your goals with a high degree of probability. Therefore, goal-focused prospective franchisees will dig deeper and ask such questions as:

  • What are the franchisor's hiring and retention strategies?
  • What is the impact of turnover on the business?
  • How long does it take to find replacement help?
  • What training programs are in place to train replacement labor?
  • How long does it take a new hire to become productive?

Every franchise has its unique challenges to overcome. Franchisors either have proven systems and a demonstrated track record for overcoming these challenges or they don't. Dismiss those who don't. Investigate those who do by asking questions like the ones above.

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