business risk

4 Ways Franchise Ownership Minimizes Business Risk

Aspiring business owners have several choices available for how they decide to break into entrepreneurship. Two of the most common ones include starting a business from the ground up and investing in a franchise. Both allow you to be a business owner, but there are slightly different nuances in how the business is operated.

How do you know if investing in franchise ownership is right for you?

Starting your own business is ideal for those who have original products and/or services to offer. If, however, you don’t have a particularly unique product or service you want to offer the world and are happy selling a franchisor’s products and services only (rather than your own ideas), a franchise might be a great fit.

A franchise is also slightly less risky to own and operate than a startup, and is a viable business model for individuals entering retirement or planning a career pivot.

There are certain questions would-be entrepreneurs must ask, and answer, before deciding to invest in a franchise. Let’s take a look at some of the key indicators that may help you take the leap.

Related: Franchise or New Business: Which is Right for You?

Invest in franchise ownership to avoid risk

Entrepreneurship is a field that is not without its risks. However, many individuals interested in pursuing entrepreneurship often choose to become franchisees in order to minimize the risk that comes with operating a business.

What makes investing in a franchise less risky than running a new startup?

  • Brand recognition: Franchises like Taco Bell and The UPS Store come with built-in brand recognition. Customers recognize these names and are (likely) already loyal customers to the franchises.
  • A wide variety of options: From exercise to fast food, there are endless industries to choose from to start a franchise.
  • Training programs: Franchisees are not given the keys to a franchise storefront without any prior knowledge in how to run the business. A franchisor will interview a franchisee prior to a franchise purchase. During this interview, the franchisor will explain more to the franchisee about training programs involved for franchisees. This kind of support includes assisting franchisees on their grand opening and procedures for training new hires.
  • Franchise expenses are outlined in The Franchise Disclosure Document (FDD): Should you choose to invest in a franchise, a franchisee must first read and review the Franchise Disclosure Document (FDD). Broken up into 23 parts, the FDD provides further insight into the costs of starting and operating a franchise. This allows the franchisee to better determine if they will need to employ an accountant for the franchise to help estimate expenses and create a timeline for when you can expect to begin breaking even.

Is your career in transition or are you nearing retirement?

If so, it may be the perfect time to invest in a franchise.

The beauty of entrepreneurship is that anyone — from a millennial to a boomer — may pivot into this line of work.

Investing in a franchise can be a savvy career move if you feel it’s time to make the leap from climbing the corporate ladder. Franchise ownership may be especially fulfilling for individuals nearing retirement, as boomers may take Rollovers for Business Startups (ROBS) to use their retirement funds to buy a franchise business without incurring tax penalties.

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What else should I do before investing in a franchise?

Before you decide to invest in a franchise, it’s critical that you ask yourself these questions first.

  • Are you ready to communicate with people? This goes beyond just employees. You must be ready and willing to communicate with your franchisor and most importantly, your customers. You’ll need to meet (and exceed) customer needs.
  • Do you listen? How are you at accepting feedback, even if it isn’t positive? Are you able to keep an open mind and find opportunities for growth?
  • Are you optimistic? There will always be up and down days in business. Is your mindset one where you’re able to view the glass as half-full, even when it feels impossible?
  • Do you find ways to keep learning something new every day? You should be able to challenge yourself as an entrepreneur, not get into the industry to coast off the success of the pre-existing franchise.

Once you have answered these questions and feel confident in your leadership abilities, you’ll be ready to pursue entrepreneurship as a franchise owner.

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