Buying a Franchise? What to Look for in a Company's History
Learn how to invest your IRA or 401k into a franchise penalty-free. ($50k min)
The history of a franchise is rarely a simple tale of inspiration, determination and innovation. Like any business it can be pockmarked with tales of failure, short-sightedness and greed. But it is that history -- the good, the bad and the ugly – that future franchisees will scour when deciding where to put their money, time and effort. Each new hire to the franchise executive team, each major marketing campaign or product offering will be a new chapter in the story of how the company stated their goals and then set out to achieve them.
A potential franchisee must do their homework before they commit to any brand. They will be trying to get an honest reading of how the brand got where they are and what they expect to achieve in the years to come. That is the basis on which they can determine whether it’s worth it to invest. It takes a mountain of exciting future plans to overcome even the smallest molehill of past franchisee neglect, no matter how far in the past, when it comes to attracting a new franchisee.
When I was seeking a franchise, my attraction to Erbert & Gerbert’s was partly due to my comfort and familiarity with the brand but also in large part to their history. I relied on advice from owners in the system, experience in the stores, customer comments, magazine and newspaper articles, expert opinions and anything else in the public sphere I could get my hands. A good franchisee will always conduct a thorough investigation.
What I saw was a concept that, from day one, was focused on quality product and service; that was wildly successful in a region creating devoted customers; and that had the leadership in place to push the brand into the future. Most importantly, I saw a franchise that valued how an owner fit in the brand over their financial position, that had integrity and honesty and that was poised to take steps into larger markets.
The franchisee wants to be able to ride a wave created by an effective corporate team and fellow owners as the brand hopefully catches the attention of the nation at large. I felt like I was getting on board at the last call.
Had I found stories of the company backing out on franchisees, having inability to secure locations, not providing operational support, or any other gigantic red flags, I would have had no reason to expect that history to change in any significant way after making my investment. A franchisor unable to answer for their past will have no future and any franchisee satisfied with no answer will share the same fate.
When you’re looking for answers as a prospective franchisee, a good place to start is the franchise’s mission statement. How did their goals match up with the actions they took to achieve them? Erbert & Gerbert’s mission statement was one applicable to many concepts -- to make their product the number one choice across America -- but how the company went about achieving this goal is what made the difference. I saw Erbert & Gerbert’s refreshing their brand, aligning themselves with the right suppliers, making appropriate arrangements for future growth and introducing new ideas and menu items in a controlled and effective way. The old adage that actions speak louder than words is true, and I saw actions and not just empty words.
That that time I was also working at other franchises and doing similar research into their histories. I was impressed by some of them and tempted by a few others, but others still did not even get past a simple Google search. Without making a call, visiting a location or meeting an owner I was able to dismiss almost a dozen potential franchises due to their public history with franchisees, suppliers, customers and decisions with the brand.
Each franchise has their own vision of a perfect potential owner, including desired experience, financial security, market location, and competence. That does not guarantee a good fit, but it should help their overall track record. A franchise with a history of too many bad fits is a red flag. However, it is up to the potential franchisee to recognize that pattern before falling into that trap.
The documents a franchise hands out to attract the coveted potential owner tell part of the story, but to obtain an accurate history a potential owner needs multiple sources. Luckily the story is out there to be found. With a little work, you can create your own future aided by your relationship with a franchise and free of all those scary red flags.
For reprints and licensing questions, click here.