Before Diving Into Franchise Ownership, You Need to Ask Yourself This One Key QuestionIf you're thinking about buying a franchise, ask yourself this simple question about your risk tolerance before you get started.
The following excerpt is from franchise expert Mark Siebert's book,The Franchisee Handbook．Buy it now．
Allbusinessdecisions involve an element of risk, regardless of if running a startup, changing your job orchoosing a franchise．But have you considered how much risk you could personally handle?
Conducting a thorough risk assessment is a key element of buying afranchise．So as you begin to narrow your list of potentialfranchise opportunities, you should first identify sources of risk in yourinvestmentdecision.
Related: Considering franchise ownership? Get started now and take this quiz to find yourpersonalized list of franchisesthat match your lifestyle, interests and budget.
Evaluating your risk tolerance
One of the first concepts taught inbusinessclasses is the "risk-reward" paradigm. In short, it means the greater the reward, the greater the risk.
There are at least two different categories of risk you should consider. On one hand, differentfranchise businesseswill carry different levels of risk based on how well a particularconceptdoes in a competitive marketplace. Think about Joe's Burgers vs.McDonald's, and you will instantly understand the idea of concept risk.
On the other hand, risk can also be quantified based on the total amount of money you devote to aninvestment．While the concept risk of a low-investmentfranchisemight be similar to the concept risk of a high-investmentfranchise, from your perspective, you will be putting more dollars at risk with the latter.
There are other questions you should address in assessing your risk tolerance, too. For example, are you willing to risk yourcareerby walking away from what might be a securejob(and which, at minimum, does not require you to invest capital) to start this newventure? Are you willing to potentially risk your personal life by working 60+ hours a week?
With that in mind, let's look at some of these risk factors so you can measure the risk associated with thefranchises you are considering．
Related:Is Franchising Right For You? Ask Yourself These 9 Questions to Find Out.
Franchise fads
Start by asking the question of if theconceptis a fad. If it's been around for years and has an established market, it will probably be around in the future — absent other changes in the market.
But if it'snew to the market, be careful. Remember, new can often mean "higher risk." Franchise fads can allow you to make money, especially if you jump in early (and perhaps get out early, too) or secure a location that gives you acaptive market for a popular product．But be careful about jumping on any bandwagon if it seems faddish.
If there are few intellectual property protections, it will be easier for competitors to enter the market. If there arelow financial barriers to entry, this will make a proliferation of competition even more likely. Ultimately, the more competitors there are in a market (or the more there will be in the future), the greater your risk. So if yourpotential franchisordoes not have a sustainable point of difference, consider whether you should include the "fad factor" in your risk calculation.
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Regionality, seasonality and predictability
You must also evaluate whether the concept will work well in yourchosen market．Let's say you're from North Carolina and just love the local barbecue. When you relocate to Texas and see that there aren't any restaurants serving North Carolina-style barbecue, you may think there's a realopportunity— and maybe it is.
But perhaps there's a reason North Carolina barbecue isn't well-known in Texas. In North Carolina, barbecue means pulled pork on a bun with coleslaw. (The sauce varies depending on which part of the state you're from.) But in Texas, barbecue means beef with a spicy, tangy sauce. So while North Carolina barbecuemightwork in Texas, it could also be a veryhigh-risk venture．
同样,考虑到季节性的business．Some businesses will work better in warm climates and others in cold. Looking to get into a lawn-care business? Perhaps you will do better in Miami than you would in Chicago.
Closely related to the question of seasonality is the predictability of the cash flow in thebusinessmodel. Somebusinessesbuild slowly over time but have a very strong base of repeat business.
If you are in the temporary helpbusinessor the senior home-care market, for example, it may take weeks or even months before you generate your first client. But since the average client will require service over an extended period of time, the repeat nature of the business provides very predictable revenues (and ultimately profits) as thebusiness grows．It is incumbent on the franchisee to start with an adequate capital reserve tosustain the businessuntil they achieve cash-flow break-even.
Related:Busting Franchising Myths and Choosing the Right Opportunity
Other businesses require their owners to constantly hunt for new clients. While a home-remodeling company, mortgage brokerage or landscaping business may be very profitable, if it does not have a strong repeat business component, you will need to count on yourfranchisor's marketing expertiseand your own sales skills to continue to grow the business.
Case in point: The more predictable the cash flow is over time, the easier it will be to manage yourbusiness— and the less risk you will incur in running it.
Concept and market shifts and risks
Another thing to watch out for is potentialchanges in the marketplacecaused by disruptive technology.
Take Blockbuster Video, which had one of the better runs in the history of franchising. At one time,Blockbusterhad close to 10,000 franchise locations worldwide. But with the advent of various pay-per-view services, the market changed dramatically. After Dish Network's 2011 acquisition of the brand, almost all 1,700 remaining locations were shuttered, except a few in selectmarkets, mostly in Alaska, and those finally closed in July 2018.
Related:10 Tips to Go From Employee to Boss, From Franchisees Who Did It
Market risks are different fromconceptrisks in that they reflect things happening outside the franchise in question. They might include competitive strategies, changes in market demand orchanges in the marketas a whole.
Ask yourself if there aretrends in the marketplacethat could negatively affect demand for the franchisor's services. For instance, if you are considering a McDonald's franchise, ask yourself if there is a noticeable consumer trend toward eating healthier. You might also be concerned with the aging of the U.S. population, as that might mean proportionately fewer young customers — a market thatMcDonald'stargets aggressively.
Drawing the line
It's ultimately up to you topredict what might happen in any market．你可能无法precisely quantify the amount of risk, but you should do your best to understand it and decide whether you can live with it. If anything on your list looks too risky for your tolerance level, draw a line through it and move on.
Get started withThe Franchisee Handbook
InThe Franchisee Handbook特许经营专家马克Siebert走你通过the process of vetting and buying a franchise, helps you ask the right questions of franchisors and yourself and gives you the resources you need to decide if franchising is right for you. Siebert shows you how to do your homework before making what could be the greatest financial decision of your life. You will learn how to:
Accurately assess the risks of buying a franchise
Determine if a franchise is a good fit for your personal goals
Research and vet potential franchise opportunities
Create a startup plan that meets your business goals
Prepare your franchise for success
Why dream about owning a franchise when you can take concrete steps to make it happen today? WithThe Franchisee Handbookas your guide, you have the power in your hands to start your own franchise journey right now.
