Low-cost franchise and business opportunities open avenues for entrepreneurs and offer an affordable start.
Always dreamed of having your own business, but lacked the capital to take the plunge? The good news is that there are several low-cost opportunities out there to get entrepreneurs invested, trained and set up.
Investing in a business should never be a decision that is taken lightly though, whether the start-up cost is big or small. A value-for-money franchise or business opportunity may feel like a less risky investment or one that won’t require hard work, but the reality can be very different.
Most successful business owners are those who realise from the outset that running a business is tough and that they need to be motivated, involved and organised. The success of their business will to a large extent be directly proportional to the effort they put in.
Choose your business opportunity with care – ask the right questions
Whether the prospective business opportunity you’re interested in is home-based, a distributorship, a licensee opportunity, a franchise or any other small business venture, there are four very important questions you must ask to ensure you choose just the right one for you:
1. What’s their track record?
- How long has the company been in business?
- What is their reputation?
- Are they individuals with integrity who have the necessary experience to be of benefit to you and/or train you?
- Will they provide referrals?
It’s never a bad idea to have an accountant, attorney or some other trusted advisor delve into some of their financial information before you invest.
2. What knowledge, skills and abilities do you have?
You must align your competencies with the business you want to purchase. Is the product/service you’re going to be selling something you know enough about to be successful? Is it something you feel confident that you can be trained to do well, and will the company train you appropriately?
3. Is it the right time and the right place?
You have no business getting into business unless you’ve done a thorough evaluation of the marketplace in which you intend to operate. Is there sufficient demand in the proposed area for the products/services your company will be providing? What does the competition look like, and how well are they doing? What do you intend to do differently that will set you apart?
4. Will this business realistically turn a profit, and when?
You may love the product or service you’re selling, but will your potential customers? Common sense dictates that you know everything possible about the company you’re buying into when it comes to finances. Ask the major players to show you the numbers. If the business has been demonstrably successful elsewhere and you believe that success can be replicated by you in your marketplace through your hard work and dedication, then you can calculate what should be a reasonable return on investment in what time frame.
You must examine what’s been done before in the context of a given set of circumstances so that you can adequately predict your potential profitability. Only then will you have a true sense of what kind of working capital you’ll need to sustain your business during those first critical years.
If you decide that you’ve answered all these questions positively, you’re ready to make that all-important investment. Then it’s just a case of looking for the right opportunity to come along…
Franchise vs. business opportunity
There are two key points of difference between a franchise and a business opportunity. Franchisees pay both upfront fees and ongoing royalties to their franchisor, while with a business opportunity the business is owned outright and can usually be operated under a name of your own choice.
Franchisees, in turn, benefit from the marketing and branding undertaken by their franchisor, tried-and-tested business systems, training and support, while the seller of the business opportunity is less likely to offer ongoing support, marketing help, etc.
It is imperative that you make sound choices when investing in a franchise or business opportunity, and it is usually advisable to choose a compatible industry. This being said, it must be remembered that a dancer is not always the best option to run a dance school. Other skills and characteristics required to successfully run the business must be taken into account – the most important being business acumen and financial management skills.
Starting any business is not to be considered a “get rich quick scheme” – more like a get rich slowly scheme! The investment will take time to make returns, and you must be financially prepared for this. If you are over geared and had to use too much borrowed finance at the outset, it is going to be difficult to provide for the unforeseen. The business should have a solid working capital base to ensure cash flow is sound. Sometimes it is better to keep it small and simple, rather than stretching yourself beyond your financial capabilities. Furthermore it is vital that you consult legal advice, financial advice and discuss it with your family.
As much as the franchisor may be choosing you, you are also choosing them. Make sure you request the Disclosure Document, Franchise Agreement and Operations Manual. This is usually after you have signed a confidentiality agreement as it gives a number of insights into the franchisor’s business.
Questions to ask existing franchisees, licencees or operators:
The best referrals for a business is from those who have bought into it. Here are some questions to consider asking:
- Are they making a profit?
- Are they getting a good return on their investment?
- What unexpected capital was needed?
- How do they feel about the relationship that exists between franchisor and franchisee?
- Are they satisfied with the support being provided?
- If they knew then what they know now, would they still buy into the franchise or business opportunity?
