The novel coronavirus pandemic is having unprecedented effects on our nation’s economy, and many companies are being forced to lay off their employees due to mandatory closures of “non-essential” businesses. Certain industries, such as the restaurant and fitness industries, have been hit particularly hard; and, in order to avoid the risk of being laid off again, some individuals may be considering the possibility of becoming their own boss by buying a franchise.
If you fall into this category, should you think seriously about getting into the world of franchising? Here are some important considerations to keep in mind:
1. You Should Not Make a Long-Term Decision Based on Your Short-Term Circumstances
While the novel coronavirus pandemic is (hopefully) a once-in-a-lifetime event, things will eventually return to normal. So, while you may be out of work for now, the job market will bounce back, and employers in certain industries are actually hiring aggressively during the pandemic. If you understand the franchise model and are serious about becoming a franchise owner, it may be an option worth considering. However, if you are simply focused on weathering the storm, there are likely better (and less risky) alternatives available.
2. You Will Need to Have Sufficient Cash Reserves to Build a Profitable Business
When you buy a franchise, your business will not be profitable immediately. It takes time to build a profitable business, and most franchisors recommend that their franchisees have anywhere from three to twelve months of capital reserves on hand when they open. This includes sufficient reserves to cover your business expenses and your personal financial needs.
3. There are Small Business Loan Opportunities Available
The U.S. Small Business Administration (SBA) offers start-up loans to franchisees, and there are various other franchise loan programs available as well. Additionally, under the novel coronavirus stimulus package, it is possible that new loans will be offered to small business owners. If you are serious about buying a franchise, you will most likely want to consider these options for financing your investment.
4. There are Many Unique (and Challenging) Aspects to Owning a Franchise
While owning a franchise presents certain opportunities, it also presents many unique challenges. Before you commit, it is imperative that you learn about the various unique, often frustrating and potentially-costly aspects of franchise ownership. For an introduction, we encourage you to read: 8 Ways Owning a Franchise is Different from Starting an Independent Business.
5. Many (But Not All) Franchisees Succeed
Finally, buying a franchise is not a guarantee of success. While many franchisees succeed, the overall failure rate is somewhere in the neighborhood of 20 percent, and it is far higher in certain industries and franchise systems.
Contact National Franchise Attorney Jeffrey M. Goldstein
Our firm represents individuals who are thinking about buying franchises, and we offer four fixed-fee franchise business review packages for prospective franchisees. To request a free initial consultation with franchise attorney Jeffrey M. Goldstein, please call 202-293-3947 or inquire online today.
