After a frustrating day at the office, you may picture yourself owning your own business. That thought is exciting and may seem more fulfilling than working for someone else. Perhaps you’ve always had an idea for starting a business or have recently discovered an opportunity for purchasing a business that interests you. How do you know if owning a business is the right move for you? Before you jump in, ask yourself these six crucial questions about becoming an entrepreneur.
1. Do you want to start your own thing or invest in a franchise?
How entrepreneurial are you? Are you comfortable starting something from scratch and seeing it through to fruition? Or would you rather follow a system and process in exchange for the safety and relative security of knowing that the franchisor has developed those systems and tweaked them for maximum efficiency over time? Are you willing to follow the operational procedures even if you think you can do it in a different way — maybe even a better way? Are you willing to happily pay 8-10 percent royalties for the term of your contract (usually 10 years) for the privilege of being part of that brand? To be clear: franchising may be quite a bit easier than starting a business from the ground up, but it’s not for everyone. If you like to have control over every aspect of your business, you should consider starting your own business and leave franchising for the more risk averse.
2. How much can you afford to invest and where will it come from?
Do you have any assets that can be deployed, like a 401K plan from a previous employer or a large amount of home equity you can tap into? Are you creditworthy enough to get an SBA loan? Remember that SBA loans require a credit score over 680 and either enough assets to use as collateral that allow you to pay all your living expenses, the estimated business expenses (working capital) and the loan payments for six to nine months, or a secondary stream of income (i.e., your spouse’s income). See more about funding options at my site, Your Franchise is Waiting.
3. What is your long-term objective?
Is your plan to build an asset that you can sell later on? Perhaps you want to create a legacy business that your kids will inherit. How about creating a secondary stream of income for yourself in retirement? Different businesses lend themselves to different objectives. Begin with the end in mind by deciding what is it you want the business to do for you.
4. Who is your target audience?
What kind of sales (if any) do you like: relationship building or “one off” type of sales? Do you see yourself networking at chamber events and leads groups? If you don’t see yourself being a sales driver, it is important that you find businesses where business is driven to you, either through marketing or by virtue of having a brick and mortar location in a good (highly trafficked) location with good signage and brand awareness. Those are, by definition, more expensive to start.
5. Do you see yourself delivering a service or selling a product?
Delivering a service typically requires a certain kind of “people person” who is well-versed in relationship building and consistent in following up. Typical service businesses could be home services (think painting, closet organization, kitchen or bath refurbishing), B2B type of businesses (like staffing, commercial cleaning or business consulting) or B2C concepts such as pet grooming, hair concepts or housecleaning. Service businesses tend to have the highest margins but can also take the longest to ramp up.
6. How quickly do you want to be open for business?
When deciding on which franchise is best for you, one question you should ask yourself is: How quickly can I get started? Also, how quickly should I get started. In other words, can you afford to not have an income for 3 months or six months while you put the pieces in place to get your business off the ground? If you can’t wait too long, that will impact the type of franchise that is best for you.
Other considerations include how many employees you are comfortable managing, what hours you would like to work and how involved — or not — you want to be in your business. When you picture your dream business, fill in as many details as you can so that you can build (or buy!) the right kind of business for you.