Having interviewed over a thousand clients (would-be business owners just starting their research process) during the last 20 years, I try to make sure they know how important it is to think about and have answers to some rather simple and basic questions that often help to define how their personal and professional goals, their strengths and weaknesses and skill set fit with particular business models. These questions, along with our personal franchise assessment, are part of the “business model” building process we use at FranNet Carolina when interviewing a client.
A quick word about our assessment. We give it to all our candidates and then share the results with them. Our assessment has been honed over the years to provide us (and you) information about your motivation for business ownership, your core competencies, your work style and the type of businesses that fit your needs. But as good as our assessment is, it only provides half the information we need to help you make a good business buying decision.
Part of the business model building process also involves asking and answering many detailed questions that help to define the best business model for a candidate. Here, in no particular order, are seven of the most important questions we ask.
- Employees: What kind of employees do you want to manage? You have choices, skilled or unskilled employees or white collar employees. Most of our candidates are coming from a white collar corporate background and will often find the types of employees they manage in their own business may be different from the ones they used to manage. There is nothing wrong with that, but you need to be comfortable with it.
- Image: There may be business models that are a great fit for you that offer a work environment vastly different from that of your former employer. Yes, yes, I know. You are thinking that you don’t care what type of business it is as long as it is a good business model that makes money and gets you away from the corporate grind. But what will you think when faced with the opportunity to buy a really good grease trap cleaning business or dry cleaning business? These are great business models and you may be a good fit, but, can you really see yourself operating and owning this type of business?
- Spouse/partner buy in: Is your spouse or partner and your family ok with this decision to buy a business? Are they all in? This is a big decision and affects the entire family for a variety of reasons, not the least of which is that it costs money and you will be working some long hours to start the business up. Is everyone ok with this? I have seen more deals and dreams blown up by a “spousal ambush” when the spouse is brought in on the back end of the decision process instead of the front end.
- To sell or not to sell – The business to business model: Many of our clients find businesses that develop corporate customers to be, on the surface, comfortable and appealing. Here’s the problem; most businesses that grow by developing other businesses as customers require good communication and selling skills and an understanding of what the sales process looks like. Most of our clients, however, do not like the thought of selling anything since they’ve never done it before. A conundrum for sure!!! And while some clients may justify their thought process by thinking they can hire a sales team, it just isn’t that easy. Your first sales person will probably be ……. YOU. You need to get comfortable with it or consider other business models.
- Hands on or Hands off: Many of our clients today are leaving behind corporate jobs and diving into their own business head first. Conversely, other clients love the thought of business ownership but still need or want to return to the corporate world. They are seeking the best of both worlds; to begin building a business while employed and then hop off the corporate ladder at some point in the future to run the business full time. They are looking at business ownership as another investment vehicle in their retirement portfolio. The good news is that this is possible. The bad news is that your choices are somewhat limited. A semi-absentee business must be one that operates with a relatively simple and scalable business model where employees can easily be trained to run the business in the owner’s absence.
- Your need for income now: In my experience, our clients tend to underestimate the length of time and opportunity costs involved in starting a business. The fact is that most franchises take a certain amount of time to begin producing income once they are opened. Now, some franchises do have the potential to cash flow faster than others. And, the opportunity costs (what you could be making at a job if you weren’t starting a business) are lower. A popular food franchise may cash flow quickly, but be a bad fit for your ideal business model. A business that relies on corporate customers for growth may take a while to become cash flow positive, but could be a great fit for your model. The bottom line is; anticipate that it will take longer and cost more than you think to start your business and get it profitable. If it doesn’t, what a nice surprise.
- Long term goals: What are your long term goals for the business? Where do you wish to take it and what is it doing for you and your family in the next 5 – 10 years. Yes, you do need to start with the end in mind. Is building equity important? Is building a great income more important? (For some folks, both are important but for many one may far outweigh the other). Is getting the family involved important? Is a business that can work without you (more leisure time) important? Whatever your long term goals are, some businesses may get you there easier than others. For example…a business that calls on only business customers and provides a recurring service may be capable of building a great income stream, but not much equity. And, it may not need many employees other than you. Certain retail concepts may provide a decent income and ROI from each store, but also build significant equity if multiple stores are built out and begin to produce a recurring revenue stream, without much involvement from you.
The answers to these questions help provide a roadmap when considering which businesses best fit you. And, most certainly you need answers to many more questions than these. In fact, we provide our clients with a list of more than 100 questions to research and answer before they buy a business. But, the 7 questions discussed here are fundamental to your decision about buying a business.
Mike Hall is the owner of FranNet Carolina, a franchise consulting company that matches clients to business opportunities.