So, you’re preparing to take the plunge of going into business for yourself, and the more you look the more that purchasing a franchise becomes an attractive option.
Unlike the launch of a totally new business concept or the purchase, for example, of a hardware store that’s for sale down the street, you’ll enjoy certain advantages with owning a franchise.
Unlike a start-up, you won’t be rolling the dice on something unproven. And, in contrast to the purchase of an independent operation, you can expect ongoing support far into the future.
Then, too, there’s the incredible variety of franchises. While a running a hardware store might not be of interest, you might like operating a quick-serve restaurant, a pest-control service or any of the scores of other types of franchises. There’s no shortage from which to choose, and dozens of new franchise concepts hit the market yearly!
So, you may have concluded that buying a franchise is looking good. But, which ones look best?
Here are nine considerations in evaluating your opportunities for a franchise that promises personal fulfillment and potential for profit along with the allure of being your own boss. When making your evaluation, you’ll want to have the Franchise Disclosure Document (FDD) close at hand. All franchisors are required to file according to Federal and State Laws, and this should be one of the first documents they provide to you.
- Market: Is the market you’ll serve stable, expanding, saturated … or showing signs of decline? What can you learn of the industry’s future? Many markets are well researched, with data readily available on the internet or in trade publications. What do they predict?
- Investment: You’ll need to know how much you can comfortably invest and measure it against what’s required. All franchisors will want to know your liquid capital, assets-to-liabilities and net worth. Why? We want you to be able to sleep at night.
- Territory: What defined area will your franchise serve, and how far away is the nearest location of another, same-network franchise? Many franchises are sold with an exclusive territory. In Article 12, the FDD will contain details of the area in which you’ll operate without competition from another franchise owner.
- Royalties: Beyond initial buy-in, this is the price you’ll pay for being part of a network and for many it’s well worth it, given the national brand you may operate under and support you’ll receive. That said, review Article 6 of the FDD carefully. See if the franchisor offers a sliding royalty scale based on revenue. This means the more you earn the less royalty you’ll pay, percentage-wise.
- Financials: Is the franchisor a well-funded operation? Review Article 21 of the FDD for their financial statements and even consider having your accountant look them over.
- Restrictions: No successful franchising organization can be an operational “free for all.” There must be some restrictions in place to ensure consistency in products or services and protect brand identity across the network. Article 8 in the FDD is the place to look.
- Aptitude: Does the franchise opportunity match your interests and capabilities? A window-washing operation might not suit you if you’re purchasing such a franchise at age 55, but it might if you are 25. Franchise agreements typically last anywhere from 10 to 20 years and backing out can be costly. Can you see yourself enjoying the opportunity for a long time?
- Support: To what length will the franchisor go to help ensure your initial and ongoing success? Some are remarkable in the level of support and training they offer; others much less so. Be sure to interview other franchise owners in the network and learn as much as you can from their experience.
- History: How reputable and competent is the franchisor? After all, you’ll be joining their organization. And, in many ways, they’ll become a partner in your success. Experience and stability are key attributes. In the FDD, Articles 1-2-3 provide details on their history, litigation record and more.
A final consideration? Your exit. It may seem premature to think about moving on when you’re just getting started. But, someday you will, and with an illness or other crisis, it may happen sooner than expected. So, how could you exit? Does the franchisor offer any assistance? And, if so, to what extent?