Franchise Buying Guide

The Right Stuff

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

Before even approaching a franchisor, Elgin suggests some key things. Prepare a personal financial statement listing all your assets and liabilities. This includes cash, stocks and similar investments, your home, personal property, credit card bills and car loans. Calculate your net worth and liquid assets. Many franchises zero in on net worth and liquidity. Having those numbers, along with your financial statements, at your fingertips is impressive and shows you mean business.

How important are net worth and cash liquidity? According to Sanders, cash liquidity is more important in the beginning to Merry Maids than net worth, due to the high amount of debt net worth sometimes includes. Campbell says, "Financing debt on debt is not a great formula for success. Depending on the strength of the net worth, financing can be a valuable option [in some] circumstances."

It's equally important to think about what you want in a business. Elgin suggests two things to consider:

1. Your long-term goals: What do you want to gain from owning this franchise? Do you want a business that absorbs you or not?

2. Your compatibility with the franchise: When Elgin got into a video-rental business many years ago, he was used to working the 9-to-5 weekday routine. Suddenly, he had to be at the business every evening, weekend and holiday. If you want to work only at particular times, find a franchise that operates on a similar schedule. Determine the number of hours per week you want to be there, and if you have a family, factor in time for them. But remember, as the owner, you're on call for emergencies or to fill in for absentee employees.

Got Skills?
What skills do franchisors look for in future franchisees?

Marketing Skills 39%
Industry Experience 29%
General Business Experience 31%

Source: Entrepreneur's Franchise 500®, 2004

In finding a franchise you can be happy with, Elgin urges, "Think about what you like to do and what you're good at." But be aware that even corporate-world experience can still not be enough when it comes to managing employees. The environment is often very different from the corporate sector, and you'll be recruiting and hiring employees who bring a host of new issues for you to deal with, such as language barriers, turnover and absenteeism. If personnel issues are not your forte, consider hiring a general manager, but find out first if the franchise allows that.

Being prepared for the evaluation is advantageous to both you and the franchisor, because it allows both parties to see if there's a good fit. Preparing thoroughly to prove why you're worth investing in puts you in a much better position than hastily popping the question and facing rejection.

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This article was originally published in the September 2004 print edition of Entrepreneur with the headline: The Right Stuff.

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