Buy a Franchise
The home service industry continues to thrive, offering plenty of lucrative opportunities for those looking to pursue entrepreneurship. From brand selection to hiring, here’s what you need to know.
Home service franchises can be lucrative investments, offering the independence of business ownership with the support of an established brand and system, but as with any investment, it’s important to find the right investment, not just an investment.
Here are 10 tips to support your due diligence process and help you avoid common pitfalls as you pursue a match with your ideal home service franchise opportunity.
When evaluating franchise opportunities, it’s important to look beyond just the daily tasks of the business or the financial model so ensure business ownership will be truly fulfilling.
While you’ll likely need to be hands-on, performing tasks in the business in the early days, if you plan to scale, you won’t be doing this forever. Even if you’re not a plumber by trade, a plumbing franchise could end up being a great match.
"If you're focused so much on the financial return of the business and not necessarily having some type of connection with what it is that you're doing in the business, that can create [problems] when the days get long," said Kyle Beach, director of operations at Wonderly Lights. "You want to be working on your business and not in your business."
Consider whether you want to buy a job or build a scalable business. The ideal franchise has processes that are "easily repeatable and trainable" so you don’t have to be the expert forever and can eventually delegate operations while focusing on growth.
One of the most important steps in the buying process is to conduct sufficient research.
While there are additional steps that will arise as you move through the process, getting as much information as you can earlier in the process will help you reach out to brands that you’ll have the best fit with.
Many franchisees like to:
When you inquire with the brand, don’t be shy about asking questions and clarifying the facts. A franchise is a substantial investment, and you should know as much as you can before making a decision.
Once inquiring with a franchise, you will receive a copy of the FDD, a hefty document with information on the leadership team and their experience, estimated initial investment, ongoing fees, any legal issues the brand has had, trademarks and other intellectual property, available training and more.
In addition to the investment and fee information, FDDs also have an Item 19, where franchisors can make financial performance representations. While all FDDs have this section, few Item 19s are identical. Some brands choose not to disclose any information on earnings. Others will provide average gross or net revenue information, breaking the data out into categories based on the approximate age of the units or the top, middle and lowest-performing segments of the entire system. Some brands include all of the units’ data in the Item 19, while others may present data from a group of units that they deem to be a representative sample.
While the FDD is long and might feel a bit daunting, reviewing it is absolutely crucial. Engaging an attorney to guide you through this process can be very valuable. Remember that this agreement will govern your business relationship for many years — don't rely solely on what you "thought you heard" during sales conversations.
While franchisors will provide a list of franchisees to contact, don't limit yourself to these references.
"I would even recommend to folks that you call some people that aren't necessarily on the recommended validation sheet, because typically, franchisors are going to put their best franchisees out in front," Beach said.
This approach makes sense, but it might not give you the whole picture. While conversations with additional franchisees may unearth some negative sentiments, they don’t have to be deal-breakers. Realistically, these owners will provide unfiltered insights about daily operations, challenges and the reality of the franchise relationship that will help you make more informed investment decisions.
Underestimating startup costs is a common error that can doom a business before it gains traction. The FDD does include an average investment range, which typically includes additional working capital, but it’s not uncommon for a franchisee to want or need even more capital.
"A general rule of thumb is your startup cost plus your first two to three months, and then 20% on top of that," Beach said. "There are just going to be unforeseen costs."
Remember to account for personal expenses if transitioning from a full-time job to an owner-operator model. Some franchisees overlook things like mortgage payments and other living expenses (that were previously covered by a salary) when considering what the startup and ongoing costs of the business will be. Even though the costs aren’t directly associated with the business, they’ll still need to be covered while the business builds toward profitability.
Understand that profitability takes time — and often longer than new franchisees expect.
"The reality of it is starting any business, franchise or not, it's going to be about two to three years before you get to profitability," Beach said. "Year one, you're probably going to lose money. Year two, you hope to come close to breaking even. Year three, you may get to profitability, but you're not replacing your current income in that third year."
Create a comprehensive financial projection that accounts for both business and personal expenses through this growth period.
Many franchisees experience doubt and anxiety during various phases of franchise ownership. Beach describes one challenging period:
"Everybody's excited when they sign the franchise agreement... and then you get into this place between when you've signed and when your business is actually open... with no money coming in and a lot going out."
Another tough moment comes after training: "There are a lot of franchisees that will, immediately after coming through training, have buyer's remorse. They think, 'What did I just get myself into?'"
Having a budget, maintaining a positive attitude and staying focused on your goals will help you navigate these difficult periods.
When cash flow gets tight, marketing is often the first expense that new franchisees cut — but this is counterproductive.
Beach explains it can be helpful to shift perspectives on the business in times like these.
"You bought a marketing business that happens to do whatever [home service] function it is that you're executing on," he said. "If you're not out there getting that phone to ring... nobody's going to know about your business."
Focus marketing dollars on tactics that drive immediate sales rather than just building brand awareness, and understand the difference between national ad fund contributions and local marketing efforts.
Some franchisees, particularly those with entrepreneurial tendencies, resist following the established franchise system.
"Part of why you're buying a franchise is that you're buying a proven system for success," Beach said. "Start by using the system that's already been proven. And then if you want to make some tweaks down the road, then [explore] that."
Deviating from the system before even giving it a chance to work often leads to conflicts with the franchisor and poorer performance.
Your staff represents your business, and their performance directly impacts customer retention and referrals. Your employees are the face of your business. Having great employees that provide great experiences will boost referrals from existing customers.
Don't let tight finances lead you to hire subpar employees. Beach advises to "hire the personality you want,” saying, “You can teach them to do the functional skill. What you're not going to be able to do is change their attitude and behaviors when they're out in front of your customers."
Purchasing a home service franchise requires careful planning, research and preparation for both financial and emotional challenges. When making what is likely one of the largest investments of your lifetime, it’s important to take your time and consider all possible factors to give yourself the best chance at success.
Growing and selling franchises is difficult. No great franchise did it alone. Want to learn more about how 1851 helps franchisors grow their franchises with confidence? Visit www.1851growthclub.com and see what we can do for you.
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