Franchise Buying Guide

Are You Franchisee Material?

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

The third most important quality to franchisors, with an 86 percent ranking, is "general business skills." That's a huge difference from the ranking for "specific industry skills," which only 29 percent of franchisors consider important.

So what are "general business skills"? Franchisors are telling us they value business common sense, a sense of what is important in a successful business. That means paying attention to financial details, managing cash and cash flow, understanding the importance of promotion and advertising, knowing how to hire employees, focusing on the customer, ensuring quality and consistency of products and services, and striving for excellence in all aspects of your operation.

Franchisors don't expect you to arrive with specific experience in the franchise's industry. In fact, trainers have told me they prefer when new franchisees don't have to unlearn bad habits or different ways of conducting the business.

A franchisor will be delighted if you understand that the profit in all businesses, especially retail businesses, is in the details. Such a small slice of the gross sales of your business arrives on your bottom line as profit that you have no choice but to master the details of the business. Tweak the details, and it can have an outsized impact on that slim bottom line. Understanding this dynamic alone will serve as one of your most important general business skills.

The general business skill that ranks above all others is this: the art of the sale. This magic business dynamic has been studied, deconstructed, written about in countless business school papers and psychoanalyzed down to the molecular level in numerous books. You need to know about features and benefits, ways to overcome objections, and techniques for closing a sale. Remember this truism: Nothing happens in business until someone, somewhere makes a sale. Your task is to become a serious student of the sale. Head online, to the bookstore or to your local library, find a few of the dozens of books on sales techniques, and drink them in.

We're Talking Money Here
The next key to success, with 84 percent of franchisors ranking it as important or very important, is "access to capital." Ah, money-the mother's milk of business. This franchisor response speaks to a chronic challenge in many franchise systems. New franchisees qualify financially to come into the system, but when they must survive a difficult patch of business or need to goose sales with an expensive advertising campaign, they have only shallow resources instead of ready access to capital.

Your only solution is to plan carefully for financial needs, including contingencies. This takes professional help. A good accountant can prepare a cash flow/needs assessment with a break-even analysis that provides a useful road map of your capital needs. If the break-even analysis shows the franchise won't be carrying its own weight for more than 10 months of operation, for instance, your accountant can help you understand the capital needs of the franchise in the first year. It's a matter of business survival.

Satisfying the capital needs of a newly established business is without question a sobering challenge. You need a well-grounded banking relationship with an institution that understands your plans and is prepared to extend your business the credit it needs to succeed. One of the most popular money and credit routes available to small-business owners and their banks is a loan backed by the SBA. Under the SBA's loan program, a participating bank can reduce the risks associated with small-business lending by looking to the federal government for compensation in the event a borrower defaults on a loan.

The SBA has cooperated with the franchise community and established a clever system to expedite the SBA loan review process. The SBA Franchise Registry reviews the disclosures and contracts of applicant franchisors and qualifies them as secure enough to be added to the registry. SBA loan officers review an application through your local bank, and if the franchisor is a member of the Franchise Registry, the banker can shortcut the process of reviewing the franchise program. Check to see if a particular franchisor has joined the SBA Franchise Registry at http://www.franchiseregistry.com.

Take the Lead
This survey provides a peek at what franchisors consider some of the top personal skills and qualities that make for a successful franchisee, and you cannot afford to ignore them. If you are weak on any of these qualities, take steps to strengthen your hand-enroll in a course or find a mentor-and submit a winning franchise application.

Andrew A. Caffey is a practicing franchise attorney in the Washington, DC, area, an internationally recognized specialist in franchise and business opportunity law, and former general counsel of the International Franchise Association.

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This article was originally published in the January 2007 print edition of Entrepreneur with the headline: Are You Franchisee Material?.

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