uying a franchise is a fantastic way to become a business owner. If you are interested in purchasing one, many people will offer to help you. They all have an interest in your purchase, usually a percentage of the sale. It is a market like any other.
But a franchise is a major purchase. Your decision should be based on your interests or those of your family. You must be able to look past the hype, promises, and tactics to find the best opportunities for you. That requires knowing what factors really matter when evaluating options.
Your Values
Leaving aside the desire for money, what else matters to you? What excites you? What are you proud of? What kind of lifestyle do you want? Before you look outward for opportunities, look inward for the values that are most important to you.
Discard any concepts that do not directly support those values. A franchise is not just an investment. It is a lifestyle. You will perform it better if you enjoy it.
Company Culture
This aspect of a franchise is less measurable but certainly felt. They are all the human factors of the organization. How well do people get along? Is there a clear mission beyond making money and how is this mission communicated and operationalized within the system?
Do franchisees collaborate as well as they do with the head office? Culture is as important as the concept. Look for brands with happy, enthusiastic franchisees who praise their franchisor and work well with other owners.
Selectivity
Is the brand selective about who they sell to or will they welcome anyone who is financially qualified? You are not simply selecting a business. You are also choosing your partners. That includes other franchisees. Who else represents the brand? Their performance will directly impact your business, both in terms of image and long-term value. At some point, you will want to sell your franchise.
The better your overall reputation, the more your placements will be worth. Make sure you join a club that is exclusive enough to ensure its members are good for everyone else. Big brands have standards. If the franchisor is going to sell to someone, be careful.
Trajectory
To be a strong franchise, a business must be more than successful; It must be replicable. "Basic opportunity" is a positive way of saying unfounded. If they've only built one or two locations (and don't get me started on a franchise that hasn't even opened one) they haven't proven the concept. You want a franchise that has multiple locations open that are showing positive growth in different markets.
Projections about what might happen are not as useful as reports about what happened. And while a newer company may have more opportunities for you, most of your most important learning is still ahead of you. The goal of buying a franchise is to avoid experimentation and simply do what has been proven to work. Startups are still worth examining, but be wary of paying to be their guinea pig.
Royalty Dependency
In addition to initial franchise fees, most brands generate revenue by charging a percentage of each franchisee's sales, 5 to 6% on average. Some make a profit by selling supplies to franchisees. Others collect rebates from required providers.
These practices are common in franchises, although not all franchisors practice them all. Ideally, you want a franchisor whose interests are aligned with yours. That means they are less focused on selling to you than helping you sell to customers. Read their disclosures, ask current franchisees, and ask the franchisor directly about their revenue model. Make sure they are working to make money with you and not just you.
Unit-level profitability
Franchisors charge a percentage of your gross sales, whether you are profitable or not. The best brands still care about your financial well-being. They want you to make money and they want that to happen even with just one location.
While expansion is the key to making big money in franchising, it shouldn't be necessary to make a good return. If the concept is sound, it should be reflected in a respectful ROI at the unit level. Ask how much data they collect on franchisees' profits and what they do beyond promoting gross sales to ensure they have money to take home.
Validation calls
This is your opportunity to talk to existing franchisees. Franchisors will probably give you a few names to fall back on. Like all referrals, they are probably franchisees who you know are satisfied. Try connecting with a few other people to get a broader perspective. But remember, your comments are based on your perspective and values. How they feel about the business is not necessarily how you will feel. So avoid asking questions that produce subjective answers, such as:
• Do you like running the business?
• How stressful is it?
• Does the franchisor support you?
The answers will say more about them than the opportunity. Instead, ask questions that reveal facts or at least shed light on the inner workings of the brand, such as:
• What does the franchisor do to build culture?
• What does the company do to support your continued success?
• How much money did you actually spend to open? Were there any expenses you didn't expect?
• How long did it take you to become profitable? How do their profits compare to their expectations?
You can also ask what worked for them and what didn't, with questions like:
• What are the advantages and disadvantages of their location/territory?
• If you were to open another location, what would you do again and what would you do differently?
• What sales and marketing strategies have worked for you?
Like all reviews, don't put too much trust in any one source. Get as many perspectives as possible.
Room for expansion
The real money in franchising is in managing multiple territories/locations. As much as you want to avoid failure, you also want to plan for success. If your first business does well, you'll probably want to expand.
Many brands will allow you to purchase development rights, allowing (or requiring) you to open multiple locations within an agreed upon timeframe. You may want to block this in advance. Or maybe you want to open a location and see how it goes. Either way, make sure there are options to grow if you want.
Market resilience
Consider how dependent the concept is on specific conditions that are outside your control. While it is difficult to plan for something as extraordinary as a pandemic, over the course of a 10-year franchise agreement, it is reasonable to expect to operate in changing economies and markets. Some franchise concepts are more vulnerable to these changes than others. What industries are you looking at? To what extent are your sales linked to the economy? Are they an "essential service"? Are they based on an in-person experience or can customers be served remotely?
No business will thrive under all conditions, but hopefully you can find one that can be profitable in most situations. Whatever you decide, begin your search within yourself. Be clear about the lifestyle you want and what is important. No one else can make that determination. Remember that even if you are financially successful, you will pay a price for that gain. It will cost you time that you will never get back. But if you choose wisely, you'll improve your life while having the time of your life.
