After a frustrating day at the office, you might think owning your own business sounds exciting and more fulfilling than working for someone else. Maybe 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 right for you? Ask yourself five crucial questions before becoming an entrepreneur.
1. Do you want to start your own thing or invest in a franchise?
How entrepreneurial are you? Are you willing to follow a system for the safety 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 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? Yes, franchising may be a little easier, 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 your previous employer or a large amount of home equity you can tap? Are you credit worthy enough to get an SBA loan? SBA loans will require a credit score over 680 and either enough assets to use as collateral that will 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-range objective?
To build an asset that you can sell? To create a legacy business that your kids will inherit? To create 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, you need to find businesses where the business is driven to you, either through marketing or by virtue of having a bricks and mortar location in a good (highly trafficked) location with good signage and brand awareness. Those will, by definition, be 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 skilled at relationship building and follow-up. Typical service businesses could be home services (painting, closet organization, kitchen or bath refurbishing), B2B type of businesses (like staffing, training or marketing support) or B2C concepts such as pet grooming, hair concepts or housecleaning. They tend to have the highest margins but can also take the longest to ramp up.
These are all questions to consider when deciding what type of business is right for you. Other considerations include how many employees are you comfortable managing, what hours would you like to work and how involved — or not — do 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.
Jane Stein is the founder of Your Franchise is Waiting, a consultancy firm for men and women exploring franchising as an alternative career path. Here’s a link to take a fun business self-assessment tool to determine the answer to some of these questions.