Before You Jump Into the World of Franchises, Ask Yourself These 5 Questions
Think proven concept, not big brand, when buying a franchise.
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How often have you heard the statement, "I don't like franchising, because I don't like Fast Food?" Franchising equals restaurants is one of the most common misperceptions I see as a franchise coach. Indeed, according to the International Franchise Association there are currently more than 750,000 franchise establishments in the United States covering approximately 75 industries.
So while there are the Paneras of the world, there are also big-name franchise opportunities like 7-Eleven, Meineke, and SuperCuts. And while these well-known chains can represent excellent franchise investment opportunities, they are not for everyone.
Instead of just focusing on big, recognizable brand names, I encourage prospective franchisees to focus on identifying a proven concept that fits their skills, lifestyle objectives and needs.
To embrace that mindset, answer these five questions.
1. Does the brand allow you to take a deep dive under the hood? One of the most important components of the due diligence process is researching your targets in depth. Does the franchisor hand select franchisees for you to call and get feedback about the company, or do they provide you with access to the full list? Are they reluctant to share their Franchise Disclose Document, or do they give it to you immediately after the first call? What do customers and franchisees say about the brand online, and how does the company respond? Seek out companies who value transparent, open relationships with current and prospective franchisees -- as well as their customers.
2. Is the industry itself poised for success? Many people consider franchising an industry. It's not an industry, it's a business model used by companies in 75 diverse industries. Take a deeper look into the market within which your franchise targets operate and make sure it's trending upward.
For instance, multiple industries have benefited from healthcare advancements and our aging population. There are obvious examples, like senior in-home care franchises, and less obvious ones, like shelf-installation franchises that help seniors stay at home longer. Do your research and explore the industry at large.
3. How well do your skills match the needs of the business? While some franchise models offer absentee ownership, most affordable franchise models require the franchise owner to run the business. How well does your career experience and personal skill set match up with the daily tasks associated with running the specific franchises you're exploring?
Related: Franchise Buying Guide
For example, a service franchise that requires owners to sell the business personally wouldn't be a good fit for an operations executive with little sales experience.
4. Can you afford the franchise businesses you're targeting? This is where many conversations about owning a franchise end -- particularly conversations about restaurants. Businesses, like restaurants, that operate from brick-and-mortar storefronts can be quite expensive, as they require a real-estate lease and build-outs, not to mention investments in equipment and staff. Even the cheapest storefront franchises usually costs more than $150,000. However, non-storefront businesses that operate from an office, warehouse or home can be significantly less expensive. Explore proven, home-based models that you can own without a staff and brick-and-mortar location to minimize costs.
5. Will you be happy actually running the business? This is a question far too few potential franchisees ask. Many prospective owners believe they would love to own a golf store because they love to play golf. However, owning and operating a golf store requires exhausting hours. Retail store owners must invest considerable time managing employees, stocking shelves and interacting with customers. Running a golf store means less time on the golf course, not more. Make sure you're buying in because you'll enjoy running the business -- not because you like the products the business opportunity offers its customers.
So, remember, choosing the right franchise requires far more than simply picking a popular restaurant brand. Do your homework and make sure the brand fits your needs, personality and skill set. If you focus on those five questions early and devote yourself to a thorough due diligence process, you are much more likely to turn your new franchise into a powerful financial asset.