If I Were to Buy a Franchise, This is What I Would Look For

Buying a franchise is not like buying a car or a house. It is a complete 180 on a prospect’s life and career, thus, the buying process should be handled delicately, especially for first time franchisees. Quite often, the sales process ignores the depth of the franchise purchase, thus, creating less opportunity to close great deals. Also, in a world of franchising where the deal is the most important thing for a start-up through emerging brand, quite often franchisees (right or wrong) are awarded franchises based on their ability to produce just enough finances to get into the game.

If I were going to buy a franchise, I would consider the following:

Table Stakes of Great Product, Great Leadership, Great ROI, Great Market Availability, Great Vision: These are the simple checkmarks that must exist for me to even entertain the idea of joining a brand. My take is that these are table stakes and not a part of the positioning.

Depth of Existing Franchisees: Many franchise brands will have franchisees who failed. I am not going to place all the blame on the franchisor (they did say yes, but hopefully they said yes because that prospect made them feel like they were the right fit). So, with the fact that some failures are healthy, I would evaluate the depth of the existing franchisees. How many want to expand? How many are happy? How many want expansion in their markets? How many would be OK with other franchisees impacting and growing their market with them? Many franchisees under value the depth of the system, but more units equals more money, which equals better product creation, better leadership, better system ROI, more money to the ad fund, etc. I want to feel like the waterfall of wins is in progress.

The Sales Process: I don’t want to feel like I am being sold. I hate it. I want to feel like I am being evaluated for the depth of my impact on the system. I want to be awarded a franchise. I don’t want to feel like the franchisor is desperate. Thus, I am going to evaluate the sales process very carefully. This is why it is important that franchisors invest in and celebrate the success of their sales team. These are the folks that will represent support during a very difficult decision.

Concept Value Proposition: Just like franchisees, many franchisors have the great benefit of using a franchise system to eventually exit. I want to know that a brand has private equity value – in that some day the franchisor will sell to an impact investor (or has already sold). I see this as valuable, in that if a PE firm is willing to put a chunk of cash behind the concept, then the value proposition should be great. There are some brands that don’t have PE appeal – which is why I would solicit some advice from PE people to impact my buying decision.

Success of Existing Multi-Unit Franchisees: Some brands are not built for multi-unit ownership. I would want to know how many franchisees have expanded their portfolios, how has that impacted their sales, and how many franchisees own over three locations (for an emerging/established brand)? I don’t want to end up with a brand that isn’t scalable – that experiences difficulties with operational issues as franchisees add more locations. One of the most important (for me) multi-unit case studies I would examine would be that of the performance of hopefully the biggest multi-unit owner in the system – corporate. If I am going to give royalty to the franchisor, I want to make sure they know how to be profitable with a portfolio of locations.

Becoming a franchisee should be a complicated path. Nothing great happens overnight. Research, planning and comfort would all be vital to me saying yes. And, if I said yes, I am negotiating a multi-unit agreement, because if I am not, there is something wrong with my feelings on the brand – because the most successful operators own multiple locations.