Analyze This

The Entrepreneur Meets The Library

We Americans have several factors working against us as we approach franchise investment decisions. We tend to be trusting, relatively wealthy and pressed for time--and that's a dangerous combination. To protect ourselves when buying a franchise, we need to exhibit patience, skepticism . . . and the research skills of a librarian.

The first step is to assess your own skills--the talents you bring to your work--and think about the type of business that would best capitalize on those skills. If you love being around people, consider a retail operation, like a restaurant, that rewards strong people skills. If you're most comfortable around corporate offices (perhaps you've had a long career in big business), then consider a business-to-business services franchise. If you enjoy mind-melding with a machine, look for a franchise in computer repair or automobile services. Go with your strengths; doing so can determine your success in business.

You should also consider your financial resources in great detail. You can bet they'll be tested when you start any business, regardless of whether you buy a franchise. Look beyond your personal bank account and retirement savings; consider what kind of support you might draw from family and friends. If your rich Aunt Mildred once told you to go into business for yourself, now is the time to talk to her about investing in your future. Be prepared to offer Aunt Mildred what any investor is looking for in return for cash: a promissory note with a definite payback period and a stated rate of return and/or an ownership interest in the business.

Early in your planning, you should meet with an accountant who has experience representing small-business owners. Rely on his or her expertise in matters related to raising money, promissory notes and the like. A good accountant can also prepare a detailed projection of your business finances, enabling you to identify your break-even points and the amount of cash you need to start and run the franchise.

Expect a flurry of paper when you begin your investigation of a franchise purchase. Set up file folders early on to help you keep the information organized and easy to retrieve.

For each company you evaluate, create folders labeled as follows: "Promotional Materials," "Notes On Meetings & Phone Calls," "Correspondence," "Franchisee Interviews," "UFOC," "Contracts" and "Miscellaneous."

Be disciplined when these materials are created or sent to you or when you return from a business meeting or trade show. Immediately drop the papers in the appropriate files, and keep them organized. If you don't, the pile of papers will overwhelm you.

You're now ready to begin contacting franchisors. Attend a trade show, do some franchise shopping on the Internet and write to companies with franchise programs that peak your interest.

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This article was originally published in the January 2000 print edition of Entrepreneur with the headline: Analyze This.

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