Finding the Right Business: A Franchise Guide to Phase 1 of Entrepreneurship

Every entrepreneurial journey starts with a single decision: what business do I actually get into? As a franchise consultant who has helped candidates navigate this crossroads for years, I can tell you that this first phase is where the biggest wins and the most costly mistakes both happen. I recently sat down with three sharp minds — Henry Lopez, host of The How of Business Podcast; David Barnett, a veteran in buying and selling businesses; and Rocky Lalvani, host of the Profit Answer Man Podcast — to break down exactly what finding a business looks like. This is the first in a three-part series we recorded together, and I want to share the biggest takeaways with you here.

You can listen to more conversations like this on the Franchise Freedom Podcast at https://ggthefranchiseguide.com/podcast/.

The Three Pathways to Ownership: Build, Buy, or Franchise

The first question every candidate faces is straightforward: do you build a business from scratch, buy an existing one, or invest in a franchise? Each path carries its own risk profile, capital requirements, and learning curve.

Henry Lopez put it simply. If this is your first business, think seriously about buying an existing operation or going the franchise route. Both give you something to work with on day one — whether that is an established customer base, a proven system, or the structured support of a franchisor. Building from scratch means creating every process, every relationship, and every system yourself.

David Barnett added a layer that does not get enough attention: self-image. Before you evaluate a single opportunity, you need to flip the switch in your own head and see yourself as a business person. People get stuck searching for the “perfect” deal because they have not yet made that internal shift. Once you start thinking like an owner, opportunities appear everywhere.

As a franchise business consultant, I see this play out constantly. Candidates come to me looking for the “best” franchise. But there is no universal best. There is only the best fit for you — your goals, your finances, your lifestyle, and your risk tolerance.

Getting Your Financial House in Order Before You Commit

Rocky Lalvani brought the financial reality check that every aspiring owner needs to hear: “Who buys a business and thinks it’s going to make money day one?” The truth is, whether you are investing in a franchise or acquiring a resale, you need a financial buffer.

Here is what that looks like in practice. If you are the only income earner in your household, who is covering your mortgage, your utilities, and your student loans while you ramp up? You need to map that out before you sign anything. Run multiple scenarios. What happens if you keep your job and hire a general manager? What if you leave your job and run the business full time? Both paths have different cost structures, and both deserve a hard look.

David made another critical point. He regularly meets people who try to patch together financing using credit card advances and short-term loans. That kind of duct-tape deal structure puts you in a terrible position from the start. If the capital is not there, it may be smarter to start a side venture first and build your way into a larger acquisition over time.

The banker David spoke with confirmed this: the number one reason business loans get denied is personal spending debt. Boats, RVs, motorcycles. Lenders want to see that you are serious enough to clear the runway.

The Due Diligence Mistakes That Sink New Owners

Due diligence is where deals are saved or where they quietly fall apart months after closing. Rocky, David, and Henry all agreed on one thing: most buyers do not dig deep enough.

Rocky said to start with the most basic question. Are the seller’s numbers trustworthy? Compare the financial statements to the tax returns. If they do not match, ask why. “If they’re lying to the government, what are they telling you?”

David expanded on this with a reality that surprised me the first time I heard it, and still catches people off guard. In small businesses, the financial statements are almost always filled with errors. The person entering data into QuickBooks is often not a trained accountant. Year-end adjusting entries from the CPA never make it back into the system. Compounding mistakes stack up over years, and the books drift further and further from reality.

He shared a story about a window replacement company with receivables showing 80 days to collect. Sounds alarming. But the real issue was a bookkeeping policy error — sales were being recorded at the time of order, not at the time of delivery and payment. The business was actually healthy. The reporting just made it look broken. Without understanding what to look for, a buyer could easily walk away from a good deal or, worse, overpay for a bad one.

Red Flags That Should Stop Any Deal Cold

Henry Lopez offered a warning I repeat to every candidate I work with: do not fall in love with the business before you finish due diligence. Emotional attachment makes you overlook things you would otherwise catch.

He also shared a situation where a buyer reached the eleventh hour of a deal only to discover that the commercial lease was month to month — and the landlord saw an opportunity to renegotiate. That single issue nearly killed the deal. Lease assignments and key supplier relationships should be examined early, not as an afterthought.

David recommended a simple but powerful exercise. Pull twelve months of bank statements. Add up all the deposits. Compare that total to the revenue reported on the profit and loss statement. Then look for what he calls “fishy deposits” — round numbers like exactly five thousand dollars. If that turns out to be the owner injecting cash to cover a shortfall, that is a massive warning sign about the health of the business.

Rocky brought it back to basics: visit the business. Walk in as if you are a customer. Observe. Are employees engaged or checked out? Does foot traffic match the revenue numbers you have been shown? Sometimes the simplest observations reveal the most.

The Mindset Shift from Employee to Business Owner

This is the topic I spend the most time on as a franchise business advisor, because it is where people underestimate the challenge. Moving from employee to employer is not just a career change. It is an identity change.

Henry nailed it when he said you have to be someone who wants to make decisions. Not just small ones. All of them. There is no committee. No boss above you to absorb the risk. And you will get decisions wrong. Henry compared it to baseball: if you hit four out of ten, you are headed to the hall of fame. The same applies in business. Accept that not every call will be right, and move forward anyway.

David added that perfectionism is one of the biggest traps. High performers enter business ownership because they know they can do things well. But scaling requires letting other people do things at 80 percent of your standard — and being okay with that, because it still exceeds what the customer expects.

I always tell candidates to treat the first year as a builder year. Learn every part of the business. Touch bookkeeping, sales, marketing, operations. Not because you will do all of it forever, but because understanding each function gives you the insight to lead, hire, and eventually step back. That is how you move from working in the business to working on the business. That is how you build toward executive semi-passive franchise ownership or whatever version of freedom you are after.

The sacrifices are real. I started my first business the same year my son was born. I knew I had a window to put in the hard hours while he was young, and I used it. But there is always an opportunity cost, and being honest with yourself about what you are willing to give up is part of finding the right fit.

This was just phase one. In the next episode, we get into cash flow management and coaching strategies for when the business is up and running. Stay tuned for that breakdown.
Find the franchise that is a right fit for you at https://ggthefranchiseguide.com/right-fit

Panel Guests: 

• David C. Barnett — Business acquisition advisor, author, and YouTuber | https://www.businessbuyeradvantage.com/

• Henry Lopez — Host of The How of Business Podcast, entrepreneur | https://www.thehowofbusiness.com/

• Rocky Lalvani — Host of Profit Answer Man Podcast, profitability coach https://profitcomesfirst.com/