Are You a Potential Franchisee?
Learn how to invest your IRA or 401k into a franchise penalty-free. ($50k min)
Q: My daughter and son-in-law want to borrow a substantial amount of money to buy a franchise. They have little business experience and have changed jobs frequently in the past. While I want to help them, I don't want to throw my money away. How can I be sure they're serious about this business and understand what they're getting into with a franchise? Are there any "surefire" franchises out there?
A: Your second question is easier to answer. As a matter of policy, we don't recommend any specific franchises in this column. But we will tell you that nothing is guaranteed. There are a lot of terrific opportunities out there, but the success of a franchise has a great deal to do with the franchisee running it. A good franchisor (and there are a lot of them out there) provides an established brand name and a proven operating system. It's then up to each franchisee to follow the system properly and focus on using sound business skills to build the business.
You may feel more comfortable about writing that check if your kids can satisfy you regarding the following:
- How many franchises have they investigated within the industry they're looking at? Generally, there are several different brands to choose from within each industry. They should investigate and compare several of them before making a choice.
- How well do they know their proposed trade area? Have they walked the neighborhood and visited their competitors? What advantages will they have over other brands in their specific trade area? Going up against a competitor who is well established in the local community often adds to a newcomer's challenge especially if the brand name of the franchise they'll be introducing is not well known.
- Have they visited the franchisor's headquarters and talked with the people on the franchisor's staff who will be supporting them? Buying a franchise without meeting the franchisor is like ordering a mail-order bride.
- Have they talked with other franchisees currently in the system and those who have recently departed? A list of current and past franchisees can be found in the Uniform Franchise Offering Circular available from the franchisor. We recommend picking franchisees at random from areas similar to the area in which they'll establish their business. Franchisees who have left the system often shed a different light or raise different issues than those who are still operating the business.
- Depending on the franchise and the current employment status of your children, you may also suggest they take a full or part-time job in one of the units before they buy one of their own. This will go a long way to ensuring they want to be in the business in the long term.
One last point on learning about franchising (and we're glad you asked). We recommend the book Franchising for Dummies(IDL) written by our own Michael Seid and Dave Thomas, founder of Wendy's. It provides an unbiased look at franchising and goes into much greater depth on how to understand and select a franchise that meets your specific needs.
Michael H. Seid, founder and managing director of franchise advisory firm Michael H. Seid & Associates, has more than 20 years' experience as a senior operations and financial executive and a consultant for franchise, retail, restaurant and service companies. He is co-author of the book Franchising for Dummies and a former member of the International Franchise Association's Board of Directors and Executive Committee.
Kay Marie Ainsley, managing director of Michael H. Seid & Associates, consults with companies on the appropriateness of franchising; assists franchisors with systems, manuals and training programs; and is a frequent speaker and author of numerous articles on franchising.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.