CHARLOTTE, N.C. — If you're considering whether to buy and run a franchise, there are several criteria you need to consider, according to a group of five panelists who spoke on what's involved in taking that route to small-business ownership.
According to the panelists, you should ask yourself these three questions before you decide to buy into a franchise.
Is your nest egg flush and secure?
Randy Mitchell of The Entrepreneur's Source, which offers business coaching to prospective franchise owners, said financing is a big issue.
When you buy a franchise, you have to pay an upfront franchise fee. The one-time fee is in exchange for the rights to a protected territory and all of the training and materials involved in opening the business — "the knowledge, the training, the secret sauce," Mitchell said.
Those fees generally range between $20,000 and $50,000, Mitchell said. Then there's the rest of the investment: building out a store, buying inventory, marketing, hiring and more.
So for a storefront business, you're usually looking at a total investment of about $120,000, Mitchell said. It can be well less than $100,000 for a mobile or home-based franchise.
Then, most franchises require that you pay royalties, usually a percentage of sales.
For example, the franchise fee for a McDonald's is only $45,000, Mitchell said in an interview. But that number is deceptively small because the total outlay for the real estate, building and upfitting the space usually costs between $1 million and $2 million, he said.
Do you prefer blueprints or innovation?
Sue Gilbert said the prescriptive nature of the Nothing Bundt Cakes franchise model was one of the key reasons she was attracted to it; it took the guesswork out of the business strategy.
It also offered a blueprint for how to run the business. For example, every Nothing Bundt Cakes franchise follows the same recipes, has chic yellow walls with blue and cream accents, and sells colorful merchandise.
"It's a huge step to go out on your own," Gilbert said, "and even though a franchise will not promise you that you will be successful, they have a lot of the foundations and building blocks to help you become successful."
TCBY franchise owner Sam Batt, on the other hand, opened the company's first self-serve style shop in April 2010 in Charlotte to such great success (within three weeks, his location was one of the top five most profitable franchises in the country) that the company embraced the trend and credits Batt with the move that reinvigorated the company and led to exponential growth.
Is the company's mission your passion?
Everette Brown, 27, who opened a Tropical Smoothie Cafe, said he's been an enthusiast of the brand since 2005.
The fast-casual restaurant, with 365 locations nationwide, serves smoothies as well as breakfast, lunch and dinner. According to the company, the menu is designed to "inspire healthy lifestyles."
Brown said that business strategy aligned with his guiding principles. Another reason to care about the mission, other than the financial investment, is that no matter what kind of business you run, it's going to require a significant investment of time as well, all panelists agreed.