Consider These Factors When Deciding Which Franchise to Invest In

With over 3,000 franchise concepts to choose from in the U.S., an entrepreneur can easily be overwhelmed by choice. However, not all choices are equally as lucrative or fulfilling. So what factors should you as an entrepreneur prioritize to ensure you select the right brand?

1851 Franchise spoke with Eric Stehle, Vice President of Franchise Development with Shine Franchise Group to gather some advice on how budding entrepreneurs can narrow down their choices and sensibly choose a franchise concept that will bring them success. 

Before working with Shine Franchise Group, Stehle was a franchisee himself. He worked with multiple brands in a variety of industries from the age of 22 to 52. Now, he brings three decades of franchise ownership experience, along with the experience of working with a corporate franchise team, to the discussion of the most important factors to consider when selecting a franchise venture. 

Determine the Industry

First and foremost, you should narrow down your choices to a single industry. This will make the selection process much more manageable. A great place to start is by considering which industries are already experiencing significant growth and success, as buying into a failing industry is a risk that will unlikely pay off. Currently, Stehle (along with many other experts) sees the home services industry as the top industry.

“All the different concepts in home services are doing quite well right now, so that's where I would look personally,” he said.

Once you choose the industry, you’ll still have a great deal of narrowing down to do. For example, the home services industry includes categories  such as cleaning, landscaping or decorating. But starting off with a successful niche will provide you with a great foundation. 

While many advise selecting an industry based on interests or passions, Stehle advises against this.

“There're so many different categories,” said Stehle. “A lot of people try to find something they have a passion for. Maybe they are hockey enthusiasts, so they want to open a hockey store. The problem with this is, then their hobby becomes a job and then they no longer like hockey.”

Instead, Stehle suggests looking at the industry with a more pragmatic approach. 

“Think about what industry is going to create the wealth and the family life that you're looking for. Maybe you're looking for something that's open every day of the week, or maybe it's just Monday through Friday,” he said. 

After all, owning a hockey shop doesn't mean that you'll be a hockey player, but rather a shop owner. Opting for a lifestyle that allows you to have the time and space for your hobbies and interests is a smart move. 

Within each industry, franchise concepts require a wide range of investments. Some may require an initial investment as little as $10,000 while others can cost millions. 

What Can You Afford?

This seems an obvious question to consider when selecting a franchise, but it’s one that Stehle suggests thinking about in great depth. It requires a lot of research and calculation to estimate exactly what you’ll spend in setting up a new business and how much money you’ll see in return.

Stehle suggested that entrepreneurs be brutally honest with themselves and work out what is achievable. 

“What is their comfort zone? What can they spend? They might get in debt for that business,” said Stehle. “They need to look at their net worth and liquid capital. Once you figure out what you can afford and where you sit financially, you don’t want to put yourself in too much over your head.”

Once you know what you can afford for an initial investment, you’ll know which concepts are available to you and which are out of reach for the time being. To get a realistic idea of the return on investment you can expect, Stehle suggests making as many validation calls to existing franchises as possible. If you can collect data and create a budget proforma for the first five years of your business ownership, you’ll have a good overview of whether or not the concept fits into your financial requirements. This is an opportunity to learn more that Stehle sees franchisee candidates deny themselves all the time.

“I do talk to a lot of franchisee candidates that go through the whole process, but they just come to my calls and after that they don't do much,” said Stehle. “They don't call the franchisees. They don’t really figure out the money situation and they're not asking all the right questions.”

When doing your homework, in addition to determining your financial bandwidth, you also need to determine the area in which you want to run your business.

Location, Location, Location

“Look at the territories too and see what is available because as a development person right now, I get a lot of people that inquire about a certain city and it's already taken,” explained Stehle. “Most franchises have that on their website.”

Stehle explained that even if an entrepreneur is the perfect candidate for every other reason, if the brand does not have availability in the entrepreneur’s area, then there is no deal. This really helps narrow down your choices, especially if you do as Stehle advises and only look within the territory where you live.

“I highly recommend people living within their territory, at least for the first location,” said Stehle. “They already have some built-up connections in the community, possibly with the schools or their kids or even coworkers and friends and family. It really starts the business stronger if they already have those relationships built first.”

Leveraging the support system you already have in place in your own community gives you an initial customer base. Plus, who doesn’t love a shorter commute? 

With so many choices of franchise concepts, entrepreneurs seeking their next business ownership venture have to do a lot of paring down before they can start seriously considering a brand. If you start by weighing up the industry, bearing in mind your financial situation and location availability, you’ll be off to a great start. 

Throughout all steps of your decision making process, Stehle would like to leave you with one piece of age old advice: just be sure to “do your homework.”

Interested in learning more about franchising opportunities? Check out these helpful resources:

• 1851 Growth Club
• A Beginner's Guide to Franchising: How the Model Works
• How to Buy a Franchise: What Is an FDD?