bannerGrowing a Franchise

Guide to Buying Another Franchise: Search For Brands That Align With Your Financial Outcome

Before growing a franchise, one should consider researching financial performance data and understand their own financial situation.

When it comes to expanding your franchise portfolio, a big part of the decision is whether or not a brand aligns with your own financial goals and needs. But it’s not always as straightforward as reviewing the investment range and Item 19 in the franchise disclosure document (FDD). There are a few topics franchisees should consider before making that next investment. 

To learn more about aligning franchise expansion with financial outcome, 1851 Franchise spoke to Turp Ricketts, vice president of franchise development at HorsePower Brands

Research Financial Performance Data

As a franchise candidate, you will want to research financial performance data (industry-wide), speak with current franchisees on validation and analyze the FDD to assess potential earnings. 

“The most important part of the match is the franchise candidate actually knowing what they want out of the franchise,” said Ricketts. “Is it tax benefits? Being semi involved with a GM in place? Going all in and replacing X amount of income? Once the franchise candidate answers those questions for themselves, they will have a much clearer picture moving forward.”

Ricketts added that one of the beauties that comes with franchising is that many models give the owner the ability to scale at a fairly rapid pace.

Understand Your Current Financial Situation

Franchise investment varies widely but typically ranges from $50,000 to over $1 million, depending on the brand and industry. You should understand your current financial situation well enough beforehand, as well as what you’re willing to put up as an investment. 

“[Franchise candidates] need to understand living expenses, assess other investments, current career (how much they make/will they keep their position, etc.) and much more,” said Ricketts. “Many candidates chose to use an SBA loan for the business. This would require a 20% cash injection into the business plus at least 10% post close liquidity. Cash is king.” 

Consider What Support You Get For Your Money

Most franchise companies offer training, marketing support and operational guidance to help new owners succeed. Some even offer assistance with financing. It is important to take the support systems provided by the franchisor into consideration the support systems provided by the franchisor if you want to ensure sustainable growth and successful management of multiple locations. 

“For example, at HorsePower Brands, we have an entity called ZeePartnerships,” Ricketts said. “Our team goes out and secures large national relationships and, most importantly, we make sure the deal makes the most sense for the franchise owners. Many times, large national relationships benefit the franchisor much more than the franchisee.” 

By actively engaging with the franchisor and leveraging these support systems effectively, you can maximize the benefits and ensure your expansions are strategically and financially viable.

Avoid These Common Issues

No matter how meticulously you plan, you may still run into some common issues when expanding your franchise, such as underestimating startup costs, insufficient cash flow and other various business struggles.

“Owners can mitigate these [issues] by thorough financial planning, conservative budgeting and leveraging franchisor resources,” said Ricketts. “The biggest thing an owner can do is focus on execution. If that can be done and the franchisee can lead a team and build a good culture, it is a recipe for success.” 

To learn more about growing a franchise, check out these related 1851 Franchise articles: