Investing & Franchising- Is There Risk? Part 2 | Business Information

Franchising: Getting Started
Potential franchisees have lots of questions for franchisors. They ?should? have many questions as they need to understand the franchise system before they commit themselves to a business. Obviously, franchisees want the answers to a few basic questions before they purchase a franchise.
What is the recommended amount of working capital?
Regardless of the recommended amount, the smart practice is to have ?more? than the minimum requirement. If the franchisor says that you will need 12 months and $ 100,000 working capital, plan for 16 months and set aside $ 150,000. By preparing more than the minimum, a franchisee can be ready to weather any storm. If the storm never occurs and franchisees have smooth sailing, they have extra funding on hand ? maybe for a second location. Speak to other franchisees to get an understanding of their experiences and challenges related to working capital.
When can a franchisee expect to break even within this franchise?
Franchisees must ask franchisors about the time needed to break even in the franchise. Franchisees should ask this question early in the ?due diligence? process. It is important to know the time period as it will determine the necessary working capital.
The franchisor might respond that it will be 12-16 months before a franchisee sees a positive cash flow. Yet franchisees should keep in mind that the franchisor?s numbers will represent the ?average? length of time. Franchisees should prepare for the ?worst? scenario rather than the average situation.
Obstacles can crop up (such as a downturn in the economy or a change or problem in an industry) and running out of working capital would put immense stress on you, your business, and your family. A reputable franchisor will work through a cash flow projection with the franchisee. This knowledge helps the franchisee determine the requirements ? based on their business goals, skills, and territory.
Every franchisee should have a ?cushion? to soften any unforeseen difficulties. A ?cushion? is critical to any business. It enables an entrepreneur to deal with unexpected changes. Even a change in government can make a significant difference to an industry. Franchisees cannot control the types of changes which can occur without warning. Unprepared franchisees might lose their market share but savvy franchisees will be able to pick it up and turn a profit.
Franchisees must be prepared to meet any challenge. If an entrepreneur is trying to decide between two franchises, choose the one which requires the least investment. Selecting the franchise requiring the least capital allows the franchisee to have deeper pockets and additional working capital.
The successful franchisee must have a combination of characteristics including passion, vision, motivation and creative problem-solving skills, as well as the ability to make decisions and learn from failures. Franchisees must be independent thinkers and, ultimately, they must be leaders.
In addition, franchisees should also be prepared to delegate duties. Not everyone is an expert in every area. If a franchisee has an expert on their team, delegate the duties to the best person for the job. Basically, successful franchising comes down to ?you.? Within franchising, you are the one who will generate success. You and your passion will build a successful team and a successful franchise.
By
Richard Verkley

Richard Verkley, the Go-to Franchising Man, is the franchise business expert to go to for all your franchise business opportunity needs. Consistently number one in new franchise sales within numerous small business and franchise opportunities, Richard is renowned worldwide for his expertise in the franchising industry. During his 23 years of experience with every level of franchise opportunity, Richard has received numerous awards including International Master Licensee of the Year and Global Master Franchisee of the Year. The creator of a global business coaching franchise, Richard Verkley is the worlds choice for franchising information and advice.

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