What is Your Risk Tolerance Level for Starting a Franchise Business?

There are risks involved in every investment, and this holds true for starting a franchise business. And, just as each investment and franchise will have its own particular risks, so will the owner have his level of tolerance for dealing with such risks.

How much risk tolerance level you have may make the difference in whether or not your franchise succeeds and you see a return on your investment. So, ask yourself the questions below, and others you may think of, to determine just where your risk tolerance level is.

How much of a risk are you willing to take?

If you are willing to invest in a franchise that is newer or may not have as proven a “track record” as a more-established one in which success is apparent, your risk tolerance level may, of necessity, have to be raised a bit. If you don’t think that’s possible, or don’t want to add that particular risk to those which already exist, you might want to consider a “tried and true” franchise investment.

What guidelines will you use to decide if a risk is too big or not?

What does the FDD that you obtained when you first started considering investing in a franchise look like? Did you trust the contents at first glance, or did you find yourself questioning some of the entries? This can make a big difference in determining your risk tolerance level.

Remember, “Gut instinct” may sometimes be as reliable as the most complete, accurate financial report. And, that instinct may be telling you to check your risk tolerance level to see if you need to take another look at things.

How do things look right now?

Is it apparent that the company is successful or is there indication that it is struggling? Consider, of course, the current economic climate overall, but also consider if waiting will possibly lower the risks, thus not affecting your risk tolerance level.

What will you do if you find that a risk was bigger than you thought?

Will you “cut your losses” or stick it out a little longer? Again, consider the current economic climate as well as any other situations that may have caused changes to occur.

Decide on guidelines that you will use to make your decision. In this way, you will have a concrete idea of the signs you are looking for. From there, you will be more able to make an informed decision.

What signs or signals will you accept as proof that you’ve reached the end of your tolerance?

If the problems with the franchise are all you can think about, you have probably reached or are close to reaching your risk tolerance level, especially if the situation has had ample opportunity to change for the better, and there is still no sign of that happening.

Further, if you are beginning to have financial difficulties that could cause long-term problems, this might be a sign that your risk tolerance level is pretty close to being reached.