How Do You Know If A Franchise Is Right For You?

Published on January 02, 2016

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Franchises are complicated yet simple.  The best ones have spent years fine tuning their processes; their systems, their brand and their marketing so that their franchisees can step in, follow the script and hopefully prosper.

This is the best-case scenario.

Unfortunately, what often happens is that franchisors sell themselves this way but don’t have the infrastructure, systems or processes to back it up.  These are the franchises you must avoid.  Just because the franchise business you are interested in does something that appears to make money, always remember that that is just one part of the equation of what you are actually purchasing.  The bigger piece is do they have the system and the follow through and the infrastructure to make your business life easier.  After all, that is really what you are paying for. So, how do you know if a franchise is right for you?

Below are 6 things to consider before you decide on a franchise.

  • Have you met with a broker/consultant, attorney & accountant?  Most people do research online and then immediately start communicating with various franchisors to gather information about the business.  The problem with this limited approach is that you will never get all the information that you need.  Asking the franchisor for all the information on the franchise will not get you “all” the information.  Rather, you will get their information, which will likely be heavy on optimism and lacking in true transparency.  Look, I am as optimistic as they come.  But never would I trust a franchisor with telling me all of the information that is necessary to make a decision about their franchise.  They have too much at stake and simply cannot be objective.  Same holds true for many broker/consultants.  Most of them are honest and very good at what they do, but they can’t be completely objective because they stand to directly benefit a significant amount of money if you purchase a franchise within their network.  This is primarily why you must make the effort to meet with an attorney and an accountant as well.   If you are serious about a franchise, you should contact a franchise attorney and your accountant BEFORE you make up your mind.  These two professionals will provide you with a unique and objective perspective that you will not otherwise get from a consultant (unless you are actually paying the consultant).  Consultants are great (well at least a lot of them are), but getting advice from others before you decide will provide you with more well-rounded information, and likely make you feel better and more educated when you do make your ultimate decision.
  • Do you have a clear understanding of the business model you are buying?  You don’t buy a business simply because you like what they do.  You buy a business because you want to make money.  The only way to do this is to understand how the underlying business operates.  How does it make money?  What are the margins?  How much inventory does it carry at one time?  It is not enough to merely understand the product or service you are selling.  You must understand the business model.  To do this, you must understand how many widgets or services you need to sell to break even.  You must understand the hard costs of your franchise, the royalties, the number of employees you will need, how to hire them, who will manage them, and on and on and on.  A lot of work goes into this.  It should.  You are buying a business.  This is not something you do on a whim.  There is simply no excuse for not understanding the business model of the franchise you are interested in purchasing.
  • Do you know where you thrive?  As a small business owner, you are going to be “married” to your franchise.  You are going to live, eat and breathe your business if you want to have any chance at being successful.  So you better be sure that you enjoy the business you are about to buy.  Too many people ignore this aspect and focus solely on the money and end up broke and miserable.  You must love what you do so that you not only live an enjoyable life, but when times get tough you fall back on your passion and drive to get you through. Consider making a mental checklist of the words that best define you.  Are you outgoing or reserved?  Do you value elegance and refinement or are you more casual?  What pace of business suits you best? Some people thrive on high energy and output.  Others may want to deal with only a few customers or clients in a day, in an unhurried environment.  Understanding these aspects has a huge impact on the type of franchise you purchase.
  • Do you have a handle on the money & other revenue sources?  The biggest mistake people make when buying a franchise is not having enough money.  Being undercapitalized is death for your business.  You either have to have enough money in the bank to get you through the first 6-9 months or have access to enough money or you will struggle and have a very difficult time.  Now this is not the case for every franchise, but most of them have ramp up periods.  And all of them require you to come out of pocket with a franchise fee and other costs before you ever open your doors.  Don’t short change the money issue.  Don’t get caught up in your “love” for the business but not have enough capital or access to capital to give it a real shot.  Doing so is a recipe for disaster.
  • Do you want to buy one or many?  In thinking about franchising and the models you are considering, are you merely thinking of buying one or owning multiple units?  This is an important question and something for you to think about before you buy.  Do you envision yourself running several franchises or just one unit?  The answer to this question can have a big impact on your strategy moving forward.  Multi-unit ownership is quite popular these days, and many franchisors are seeking out franchisees that are interested in multiple units.  There are certainly advantages to owning multiple units, but only if you are with the right franchise system.
  • Have you spoken to other franchisees and former franchisees?  Never buy a franchise without speaking to as many franchisees and former franchisees of that system as possible.  You must speak to these people and ask questions.  Lots of questions.  Click here for some questions that you should start with when speaking to current and former franchisees.

There are undoubtedly other things that you must do before you buy a franchise.  But these six things will certainly help you along the way.  Always remember that buying a franchise is the start of a marathon.  Most franchise agreements are 10 or 15-year terms.  Don’t rush into a system that you later regret and have difficulty exiting.  With franchising it is always better to take your time, thoroughly vet the system, and then make a decision.

 


About the Author: Jeff Lefler
As the CEO of FranchiseGrade.com, Jeff understands that there is no Silver Bullet or sure-fire, simple way to pick a guaranteed franchise system winner. However, by using a little science and a lot of hard work, Jeff and the team at FranchiseGrade.com have developed a sophisticated research, analysis and comparison model to help potential investors and existing Franchisees assess a realistic value for any franchise system relative to others. It's called a Franchise Grade. With over fifteen years of small business experience and ten working in franchising as a multi-unit Franchisee, consultant and Franchisee Association President, Jeff has a good understanding of the level of hard work, dedication and commitment that drives a successful franchise system. As part of his ongoing involvement with the industry, Jeff also served as a Member of the Strategic Committee of the International Association of Franchisees and Dealers. Get in touch with Jeff to see how your system measures up.
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