Thinking about taking the next step and following your dreams of entrepreneurship? Although buying a franchise can greatly improve your quality of life, it’s also a life-changing decision that requires careful thought and planning. Here are eight things that industry pros recommend you keep in mind .....
1. Evaluate your situation
The first step to success in franchising is actually taking a step back. You need to perform an honest evaluation to determine how much capital you have to work with, what risks you’re willing to take and how much effort you’re willing to put into an enterprise.
Also consider your stage in life. If you have two kids heading off to college in a year, you may not want to be gambling with your life savings on an up-and-coming concept. If you want to keep your day job, you’ll need to find a franchise that allows you to work nights or weekends. There are all sorts of quizzes and resources online that may help you determine whether franchising is the right move for the present moment.
2. Follow your passion
Once you’ve decided that franchising is definitely what your future holds, you’ll come to the hardest part of the process: deciding on a concept. The most important factor in this process is ensuring you choose something that will make you happy. Steve Beagelman, President of SMB Franchise Advisors, says this point can’t be stressed enough.
“You have to like the concept and business,” he says. “It doesn’t matter how much money you make--if you aren’t happy what you’re doing, you’re going to be miserable in the first few months.”
Start by taking a macro approach and examining industries as a whole. Pet lovers may find success in the rapidly growing pet care industry, while the outdoors types may prefer a lawn care or pool concept. If nothing stands out at first glance, see if there are franchise opportunities that offer ways to capitalize on your existing hobbies and interests.
3. Do your homework
After settling on an industry, you’ll need to start learning everything you can about the brands in that sector. Here are a few important questions to ask while researching potential opportunities:
- Does it have territories available where I want to operate?
- What kind of training and support does it offer?
- Does it have an established brand name and presence in the industry?
- How much is it going to cost to get up and running?
- Will I be responsible for hiring and managing a staff?
- What will my day to day responsibilities be?
Another factor to consider is the age of the brand. Getting involved with a startup brand can allow you to take on a pioneering role and help shape the future of the brand, but it comes with greater risks.
More established brands can offer better name recognition and marketing support but may have limited territory options.
One of the biggest determining factors in what franchise you end up buying comes down to money. There are two main numbers you’ll want to know and understand:
The first is the franchise fee. Virtually all brands charge an up-front amount that entitles you to become a part of the franchise organization. Franchise fees vary greatly not only between industries but even between competitors, ranging from hundreds of dollars to hundreds of thousands of dollars. Some brands may offer discounts on franchising fees for veterans, minorities and women.
The second number is the startup cost. There’s no set formula for what this estimated figure entails, but it can include costs associated with construction, build out, branding, staffing and equipment or resources.
If money is an issue, you may want to look for a brand that offers financing. The difficulty in qualifying for a small business loan in recent years has led many franchisors to offer financing programs for franchise fees, startup costs or sometimes both.
5. Don’t go it alone
The sheer amount of information on franchises may be overwhelming. That’s why Tom King, Franchise Development Director for Right at Home, suggests working with a consultant.
“You shouldn’t do this alone,” says King. “There are 3,000 franchises out there--someone needs to help you hone it down to solid ones.”
Franchise portals and consultants are both good resources to help sort through the torrent of information and help you find the right fit.
You should also talk with friends and family about your decision. King believes family, and especially spouses, should be involved from the beginning.
“Franchisors are uncomfortable when they don’t know the family dynamics,” King says. “In a marriage situation, a husband and wife are equal partners in owning the assets of that marriage. It’s absolutely a vital piece of the picture.”
6. Study the FDD
Every franchise you consider will have a Franchise Disclosure Document. Within this FTC-mandated document is everything you need to know about the business side of a franchise. You should review the entire document with a franchise attorney before making any decisions, but here are a few sections Beagelman says you should pay extra attention to:
- Item 2 – Business Experience
- Item 3 – Litigation History
- Item 6 and 7 – Ongoing and Startup Costs
- Item 12 – Territories
- Item 19 – Earnings Claim(s)?
7. Prepare to impress
Tom King’s advice when it comes to meeting with a franchisor is simple.
“Most deals end the way they start,” King says.
King stresses that the first meeting between you and a franchisor will be a two-way interview. While you’re asking questions about the brand and business model, the franchisor will be evaluating whether or not you’ll be a good fit for the company.
Here are a few things you can do to stand out and prove you’re serious about a franchise:
- Keep appointments – If you agree to be available at a certain time, make sure you are. Likewise, if you agree to have your spouse or partner with you on a call, make sure they are at the agreed time.
- Return paperwork on time – As with any legal agreement, there are a lot of T’s to cross and I’s to dot. Getting forms and documents back to the franchisor on time speeds up the entire process and gives a preview of your work ethic.
- Fill out a financial qualification form early – Completing this form is an immediate attention-getter to a franchisor. It shows that you’re ready to really dive into the process.
“You have to show that you’re willing to follow the system,” says King. “If you respect my time, I’ll respect yours and know you’re serious.”
8. Commit to the process
When you buy a franchise, you’re not only buying the name and concept, you’re also buying into the practices and procedures that the franchisor has perfected over the years. King says nothing can ruin your chances of success faster than deviating from the guidelines offered by a franchisor.
Although there is always room for individuality and improvements, when you buy a franchise you must commit to the process outlined by its leaders. A good franchise wants you to succeed and will make it as easy as possible for you to do so—but you must stick to the right methods.
Although the eight items above are more guidelines than hard and fast rules, sticking to them will prepare yourself to succeed in the world of franchising. Steve Beagelman puts it best:
“Becoming a new franchisee is an exciting time. It’s exhilarating to own your own business and follow your dream of being your own boss, but it’s not for everybody. You have to work hard, work smart and follow direction from the franchisor. If you do all those things, it’ll help you be more successful.”