Evaluating And Choosing The Right Franchise
There are more than 3,000 different franchises available in the United States. How can you increase your chances of choosing the right one? Following these 10 steps can increase your chances of choosing a franchise that will make you successful both from a personal and financial standpoint.
1. Determine what you can afford and are willing to pay to open your business – It is critical to determine what you can afford to pay. This entails evaluating your personal savings, the equity that you have in your home or real estate, and your personal credit score. All of these will come into play as you look to invest in your new franchised business.
2. What do you bring to the table? – While it is not critical for you to stay in the industry you have worked in your entire adult life, you should look at opportunities where your skills and experience will benefit you. Also assess what you want to do and what your family and personal circumstances allow or prevent you from doing.
3. Research the Market – Use the Internet, trade associations, etc. to research particular business markets you are interested in. When researching, avoid the temptation of allowing pure emotion (you did not get enough vacation days, the new person in the office ticks you off) to cloud your judgment when it comes to fully understanding what the business actually does and the market it can be expected to draw from.
4. Research the Franchise Opportunity – There are three main reasons to join a franchise. Investigate all of them:
- The Brand – what value does the name hold in the market place? Does it garner immediate recognition and respect? Does the brand have a positive reputation? Has the franchise done a good job with trademarking their marks and do they protect them from infringement? Will the brand help drive business?
- The Operating System – what processes have been developed by the franchisor to enable their franchisees to operate more efficiently and provide a better product than their competitors? How do they enforce compliance? Is the operating system consistent from location to location? What is the competitive advantage?
- The Ongoing Support – Does the franchise company provide operations, marketing, real estate, or business development support? What expertise do they and the franchise owner have in these areas? Are these people contracted out or are they employees of the franchisor? Do they regularly visit your location? Do you pay separately for these services or are they part of the franchise fee?
5. Speak to Existing and Former Franchisees of Your Choosing – Don’t just settle for the existing owners the Franchise Company gives you to call. Find where others are located and contact them. Find out what they like and don’t like about the franchise. Ask them questions like:
- How has your business grown?
- What surprises have you experienced both good and bad?
- Do the company marketing programs generate profitable business?
- Does the franchisor provide you with great service, a valuable brand, and an operating system that competes effectively in the marketplace?
- Are you happy with the franchise?
- Do you feel you get good value for the fees you pay?
- Would you do it again if you had the decision to make now?
- What are realistic expectations for sales and profits in year 1, year, 2, and ongoing? Are your expectations realistic?
- Would you be willing to spend a few hours letting me see your operation and discussing it?
6. Get Sound Professional Advice – There are a large number of professional advisors that specialize in franchising including consultants, accountants, banks, and attorneys. These people are invaluable in making sure that you are taking the right steps and aren’t missing out on any critical information. This is particularly important when reviewing the Franchise Disclosure Document (FDD) and Franchise Agreement. It is important to note that like anything else, some of these professionals are better than others so research them to see which one is right for you.
7. Read the Franchise Disclosure Document (FDD) Completely – the franchisor is required by law to provide you with an FDD before you sign any franchise agreements or pay them any money. The best way to describe an FDD is that it is mostly everything you would want to know about a franchisor written by their attorneys. It is not exciting reading but it is crucial that you understand everything in it. This document will discuss you and the franchisor’s responsibilities. It is critical that you obtain non-biased professional legal advice on this document, preferably a franchise attorney.
8. Ask the Franchisor Questions – Here is a sampling of questions to ask the franchisor:
- What is your company’s primary focus? Are you looking to expand solely through franchising or do you plan to open company-owned locations?
- What will my protected territory be?
- How do you resolve conflicts? Note: Be sure to look at existing litigation in the FDD
- Where should my business be located?
- Do you help with my business plan?
- Do you provide financing in-house? Do you provide funding help?
- What areas of support do you provide?
9. Be Sure of Your Decision – Take your time and make sure you are making a great decision. This is likely to be one of the biggest decisions of your life. Over the course of the franchise agreement, you are likely to pay the franchisor hundreds of thousands of dollars. If you have any doubt in your mind, then you probably haven’t done enough research.
10. Contact your Friends at the Veterans Business Resource Center – We can help you evaluate the opportunities and work with you from the beginning through opening and as your business matures. There is no cost to veterans for our services.