Buying a Franchise

An important step in the small business start-up process is deciding whether or not to go into business at all. Each year, thousands of potential entrepreneurs are faced with this difficult decision. Because of the risk and work involved in starting a new business, many new entrepreneurs choose franchising as an alternative to starting a new, independent business from scratch.

Although the success rate for franchise-owned businesses is significantly higher than for independent businesses, no individual franchise is guaranteed to succeed. One of the biggest mistakes you can make is to hurry into business, so it's important to understand your reasons for going into business, and to determine if owning a business is right for you.

If you are concerned about the risk involved in a new, independent business venture, then franchising may be the best business option for you. But remember that hard work,

dedication, and sacrifice are essential to the success of any business venture, including franchising.

What is Franchising?

A franchise is a legal and commercial relationship between the owner of a trademark, service mark, trade name, or advertising symbol and an individual or group wishing to use that identification in a business. The franchise governs the method of conducting business between the two parties. Generally, a franchisee sells goods or services supplied by the franchisor or that meet the franchisor's quality standards.

Franchising is based on mutual trust between the franchisor and franchisee. The franchisor provides the business expertise (marketing plans, management guidance, financing assistance, site location, training, etc.) that otherwise would not be available to the franchisee. The franchisees bring to the franchise operation the entrepreneurial spirit and drive necessary to make the franchise a success.

There are primarily two forms of franchising:

Product/trade name franchising and Business format franchising. In the simplest form, a franchisor owns the right to the name or trademark and sells that right to a franchisee. This is known as "product/trade name franchising." The more complex form, "business format franchising," involves a broader ongoing relationship between the two parties. Business format franchises often provide a full range of services, including site selection, training, product supply, marketing plans, and even assistance in obtaining financing.

To learn more about the advantages and disadvantages of franchising, the franchisor's responsibilities, what is contained in a franchise packet, and Understanding the franchise contract, Read SBA's "Is Franchising for Me?" Workbook and the Consumer’s Guide to Buying a Franchise.

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Buying a Business

Many find the idea of running a small business appealing, but lose their motivation after

dealing with business plans, investors, and legal issues associated with new start-ups. For those disheartened by such risky undertakings, buying an existing business is often a simpler and safer alternative.

Advantages

The main reason to buy an existing business is the drastic reduction in start-up costs of

time, money, and energy. In addition, cash flow may start immediately thanks to existing

inventory and receivables. Other benefits include pre-existing customer goodwill and

easier financing opportunities, if the business has a positive track record.

Disadvantages

The biggest block to buying a small business outright is the initial purchasing cost. Because the business concept, customer base, brands, and other fundamental work has already been done, the financial costs of acquiring an existing business is usually greater then starting one from nothing. Other possible disadvantages include hidden problems associated with the business and receivables that are valued at the time of purchase, but later turn out to be non-collectable. Good research is the key to avoiding these problems.

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Finding a Niche

A market in its entirety is too broad in scope for any but the largest companies to tackle successfully. The best strategy for a smaller business is to divide demand into manageable market niches. Small operations can then offer specialized goods and services attractive to a specific group of prospective buyers.

There are undoubtedly some particular products or services you are especially suited to provide. Study the market carefully and you will find opportunities. As an example, surgical instruments used to be sold in bulk to both small medical practices and large hospitals. One firm realized that the smaller practices could not afford to sterilize instruments after each use like hospitals did, but instead simply disposed of them. The firm's sales representatives talked to surgeons and hospital workers to learn what would be more suitable for them. Based on this information, the company developed disposable instruments which could be sold in larger quantities at a lower cost. Another firm capitalized on the fact that hospital operating rooms must carefully count the instruments used before and after surgery. This firm met that particular need by packaging their instruments in pre-counted, customized sets for different forms of surgery.

While researching your own company's niche, consider the results of your market survey and the areas in which your competitors are already firmly situated. Put this information into a table or a graph to illustrate where an opening might exist for your product or service. Try to find the right configuration of products, services, quality, and price that will ensure the least direct competition. Unfortunately, there is no universally effective way to make these comparisons. Not only will the desired attributes vary from industry to industry, but there is also an imaginative element that cannot be formalized.

For example, only someone who had already thought of developing pre-packaged surgical instruments could use a survey to determine whether or not a market actually existed for them.

A well-designed database can help you sort through your market information and reveal

particular segments you might not see otherwise. For example, do customers in a certain geographic area tend to purchase products that combine high quality and high price more frequently? Do your small business clients take advantage of your customer service more often than larger ones? If so, consider focusing on being a local provider of high quality goods and services, or a service-oriented company that pays extra attention to small businesses.

If you do target a new niche market, make sure that this niche does not conflict with your overall business plan. For example, a small bakery that makes cookies by hand cannot go after a market for inexpensive, mass-produced cookies, regardless of the demand.



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Know Yourself

Not everyone is cut out to be an entrepreneur. It takes a special talent. Some owners of small businesses have it and some don't. Before you invest time, energy, money and a piece of your heart, it's important to do some serious self-analysis.

To answer such questions as:

·         Am I prepared to work hard and make sacrifices?

·         Am I self-disciplined?

·         Do I have management ability?

·         Am I experienced enough in this field?

·         What do I want out of life?

·         Are my goals realistic and attainable?

Studies have shown that entrepreneurs are persevering and not easily defeated. They

thrive in a challenging environment and have a tremendous need to be in control. They

turn diversity into opportunity. They are risk takers. They welcome responsibility, and they are willing and able to make decisions.

Moreover, successful entrepreneurs are patient and able to wait out the sometimes slow beginnings of a business. They also are able to learn from their mistakes, trust their own judgment and have an optimistic outlook.

Take a good look.

Do those traits describe you? "Know yourself and be willing to work 60 hours a week. Starting a business is one of life's biggest commitments.

It's obvious: you have to love your work. And if you choose a business that meshes with your personality (the answers to the above questions should tell you about your personality), those extra hours spent won't be as difficult. The key is to identify what you enjoy doing the most and then find a business opportunity that makes use of your skills and interests.

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Accessing Your Skills, Education, and Experience

After completing the Entrepreneur Test, you probably have a better idea of how you compare with other entrepreneurs. However, this is not the complete picture. Your skills, education, and experience also provide you with tools that will help you should you decide to start your own business.

The first step in your assessment is to make an honest appraisal of your personal skills and education. You should list everything, especially if you are unsure what type of business in which you want to become involved. Don't list any faults or doubts here. This is a place to remember all of the things that you know how to do well (no skimping on personal praise).

After you have identified your personal skills and education, focus on your business knowledge. If you know what you are interested in, list what you know about the field or industry. If you are well versed, simply outline the general areas. If you are not sure, you should list everything. Concentrate on specific business information rather than general life experience. All experience will be useful, but we can only use the business experience when we are making a decision about what skills you may need to develop in order to run your business.

The next step is to evaluate your decision making abilities. When you own your business, you are in charge, and many decisions will have to be made based on what you think. Not all of these decisions will have to be made immediately, but some of them will have to. If your normal response is to give problem solving to someone else, then you will probably have difficulty with running a business. Reflect on your life experiences. Write down two situations where you solved a problem and the decision you made worked well. Then write down two situations where the decisions you made did not work so well. Be sure to write down what you learned from these situations.

Last, but certainly not least, identify your entrepreneurial skills. As we mentioned earlier, a lot of Successful entrepreneurs have a lot of initiative and also take risks, and they have learned from making their own mistakes. Taking a clear look at your source of motivation and your belief in yourself will help you to be prepared for the challenges that come with owning your own business. Probably the three most important factors on the road to

Success are: the ability to be flexible, the willingness to change with the market as technology advances, and the ability to trust yourself. If you have all of these, you are more than halfway there.

Once you have completed your assessment, you may want to review all three areas to determine where you are at this point in time. By evaluating and understanding the whys and how’s of what you have or have not accomplished up to this point in your life, you can better use this knowledge to your advantage, now and in the future.

The following questions will help you do this. Remember, the more honest you can be in answering the questions, the more useful the information will be to you.

What do you feel are your main strengths?

What do you feel are your more serious weaknesses?

How do you think someone else might answer the above two questions about you?

What talents do you possess and in what situations have you been able to use them?

How would you personally define the idea of having a job or being employed?

Now, things are already starting to make sense or you are beginning to have doubts.

Either way, listen to your feelings and trust yourself. In the end, these are only tools for

you to use in your evaluation process, nothing more and nothing less.

  

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What are the similarities of successful entrepreneurs?

· persistence

· desire for immediate feedback

· inquisitiveness

· strong drive to achieve

· high energy level

· goal oriented behavior

· independent

· demanding

· self-confident

· calculated risk taker

· creative

· innovative

· vision

· commitment

· problem solving skills

· tolerance for ambiguity

· strong integrity

· highly reliable

· personal initiative

· ability to consolidate resources

· strong management and organizational skills

· competitive

· change agent

· tolerance for failure

· desire to work hard

· luck

Two traits successful entrepreneurs have are creativity and innovation.

Creativity is creating ideas and ways to solve problems that provide opportunities.

Characteristics of Creative and Innovative People are:

1. bright

2. adaptable

3. high self esteem

4. challenge-oriented

5. idea-oriented

6. inquisitive

7. curious

You can improve your creativity by gathering as much information as you can (read, talk

with experts, etc.) "brainstorm" over time. Just think about the problem or issue until an

idea comes to you.

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Why Small Businesses Fail

Success in business is never automatic. It isn't strictly based on luck although a little never hurts. It depends primarily on the owner's foresight and organization. Even then, of course, there are no guarantees. Starting a small business is always risky, and the chance of success is slim. According to the U.S. Small Business Administration, over 50% of small businesses fail in the first year and 95% fail within the first five years.

1.    Lack of experience

2.    Insufficient capital (money)

3.    Poor location

4.    Poor inventory management

5.    Over-investment in fixed assets

6.    Poor credit arrangements

7.    Personal use of business funds

8.    Unexpected growth

9.    Competition

10. Low sales

More Reasons Why Small Businesses Fail

·         These figures aren't meant to scare you, but to prepare you for the rocky path ahead.

·         Underestimating the difficulty of starting a business is one of the biggest obstacles entrepreneurs face. However, success can be yours if you are patient, willing to work hard, and take all the necessary steps.

·         Do You Have What It Takes?

·         What does it take to be an entrepreneur? Which personality traits make for success? Let's see if you have what it takes.

·         FICTION: To be an entrepreneur you must be born that way.

·         FACT: Anyone can learn to operate like an entrepreneur.

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