Veterans: 3 Ways to Minimize the Risks of Buying a Franchise
To all the veterans out there: Thank you for your service to our country. The sacrifices you’ve made to help ensure our freedom and our safety are greatly appreciated. If you saw combat, I can’t imagine some of the things you experienced. You risked it all, and that says a lot about you.
You’ve taken enough risk to last a lifetime. My goal with this article is to help you eliminate as much risk as possible if you’re considering franchise ownership as one of your career options.
One of the reasons that veterans are attracted to opportunities in franchise ownership has to do with the franchise model itself, which features tightly-controlled processes that have been designed to be easily duplicated again and again. When you buy a franchise, you are buying a business system that’s (hopefully) been proven to work.
In a perfect world, you should be able to get your franchise business up and running with a minimal amount of headaches. Except it’s not a perfect world, and franchising isn’t perfect either.
Buying a franchise isn’t less risky than buying a non-franchise business. If people in franchising tell you otherwise, ignore them; they’re probably trying to sell you something.
Starting any type of business carries risk. Here’s how to lower yours if you go the franchise route.
Have a family meeting
If you're considering buying a franchise, you're going to want the full support of your family. Without it, your risk of failing increases, as you’ll start feeling that you’re in it alone.
Be upfront with your loved ones about the financial risk associated with your potential business venture, as well as with your motivation for wanting to pursue it now. Even if they’re not going to be involved in the day-to-day operations of your business, they will be involved emotionally as they observe your day-to-day business victories and defeats. Let them share their feelings and concerns. They may bring up things you didn't think about.
Look at your financials
You definitely don’t want to guess what your financial situation is. That’s risky. This isn’t the time to estimate things like the value of your home, your investments or your debt.
Start off by doing a personal balance sheet, like this one. Most franchisors won’t spend a lot of time with you if you don’t know your basic financial information. Eventually, you’ll have to submit this information to them anyway as part of the formal application process, so you may as well have it ready to go.
Important: If you don’t have some liquid capital available-funds that can be cashed in immediately if necessary, it’s going to be tough to get approved for a small-business loan. I’ve yet to see any of my clients get approved for a loan without putting some of their own money up.
There is some good news for veterans who are interested in starting their own businesses, however. The National Association of Development Companies (NADCO) has partnered with the SBA in its "Pledge to Veterans" which aims to increase SBA lending to veterans by 5 percent per year for the next five years. NADCO launched the VetLoan Advantage program, in which SBA Certified Development Companies have reduced fees on SBA loans in order to help more veterans get the financing they need.
Just remember that you’ll still need to put some of your own money down.
Write a formal business plan
If you don’t submit a formal business plan to your lender when you apply for your small-business loan, you’ll risk getting your loan turned down.
Today’s lenders need to know how you’ll be getting from startup to profitability. They’ll want to know things like what your target market is, the competitive landscape, your marketing plan -- plus they’ll want to look over your financial projections.
If you don’t have a business plan, not only do you risk not getting financed, you risk not having the ability to track your franchise’s progress. That’s right; a business plan isn’t just done for the lenders. It’s done for you. It can help you get where you want to go.
Veterans and franchising can be a great mix. It’s up to you to get the facts you need to make a wise decision and do everything you can to lower your risk.