For many entrepreneurs, one type of business model that attracts many to either start their first business or to add to their current business portfolio is the franchise business model.
And while achieving success as a franchise business owner depends on a great number of factors, it all starts with the purchase of the franchise.
Since we here at Direct Capital help provide financing solutions that directly support many current and prospective franchise owners, we wanted to learn more about the franchise buying process. We specifically wanted to discover expert tips from franchising experts on the most important factors prospective business owners should consider when investing in a franchise. To do this, we asked 27 franchising experts to answer this question:
“What’s the single most important factor to consider when buying a franchise?”
We’ve collected and compiled their expert advice into this comprehensive guide on purchasing a franchise. See what our experts said below:
Meet Our Panel of Franchising Experts:
Kenneth Jennings is the CEO & President of Mr. Rekey Locksmith, America’s largest residential locksmith. Seeking out an inventive approach, Kenneth’s vision was to provide reliable residential and commercial locksmith services at a straightforward all-inclusive price, and focus on rekeying rather than replacing locks, thereby saving the customer time and money. He revolutionized and transformed an industry that was previously known for inconsistencies by creating a reputable brand identity and multiple opportunities for market growth to its franchisees. Mr. Rekey offers franchisees a comprehensive business platform that includes back-office operations, marketing methodology, company certified training, industry specific tools and equipment, along with a proven support team to help franchisees. During the last 35 years, Ken has founded more than 40 businesses and spent time studying the success of other business leaders in thriving industries and applying them to his own business ventures.
It is really hard to pick the most important factor to consider when you buy a franchise because all the deciding points are valid and need to be considered. Being forced to pick though, I would have to say…
Having passion for what you do should rank number one.
Life is too short not to do things that you really love. When you enter the world of franchising, you in turn have entered the world of business ownership, and when that event happens, by default you become an entrepreneur. To be an entrepreneur requires that you have passion – it is the natural progression.
The business becomes your baby and no one wants an ugly baby. And even if you have an ugly baby, to you, the baby is beautiful. So why not start out with a beautiful baby in the first place since you have a choice.
Another reason that passion is so critical is the franchise agreement. These agreements are usually about 7-10 years. That’s a long time to be in a relationship without passion. Once the honeymoon is over there is still a long way to go. And the longevity of happiness is extremely important.
Take for instance the discussions one has in social settings. People inevitably ask, “What do you do”? Are you going to be excited to tell them what you do, or will you speak about it in a sheepish manner?
Excitement and passion are contagious. You should want to be a brand advocate. When you have passion you are always thinking of how to further promote your company, and how to do it even better the next day. You wake up a little earlier each day excited about your impact.
Passion is number one.
Daniel M. Janssen is a Partner at Quarles & Brady LLP, and he established and now heads the Quarles Franchise & Distribution Law Team, representing clients that sell products to customers through franchises, dealerships, distribution, and other sales channels. His primary goal is to help clients avoid problems before they arise, through sound business planning and distribution channel management. Dan represents clients in building, maintaining, and consolidating distribution networks, guiding clients through market withdrawals and the rationalization of distributor networks. He advises clients on issues that include pricing, advertising, warranties, terms and conditions of sale, disclosure and termination laws, the internet, and the Uniform Commercial Code. Dan also regularly serves as counsel in litigation involving the termination of distribution relationships. He has substantial experience prosecuting and defending preliminary injunction motions and in taking cases through trial to the appellate courts.
While there are many components to consider when purchasing a franchised business, it is critical to…
Choose an opportunity that falls within the buyer’s saving and budget. This includes amounts saved by the buyer, sums likely to be raised from partners and investors, and reasonably anticipated or confirmed borrowed funds. The buyer should compare all of these investment sources against the costs and expenses of purchasing, building, and operating the franchise. The buyer should refer to the Franchise Disclosure Document (FDD) for guidance; it is the equivalent of a prospectus and will generally summarize the costs and risks of the franchise. Such cost summaries will generally be found in Items 5, 6, and 7 of the FDD. Additional consideration should be given to the buyer’s living expenses incurred until the franchise begins to generate a profit.
While the FDD may possibly include financial performance representations for the franchise in Item 19, the buyer should not assume that his or her business will necessarily match—much less out-perform—the figures provided. Other due diligence should be undertaken. For example, existing franchisees of the concept under consideration should be interviewed (contact information will be found in Item 20 of the FDD). While current franchisees may be reluctant to share specific financial performance information, they will likely be excellent sources of practical information.
Finally, the buyer should establish a relationship with a knowledgeable financial advisor before purchasing a franchise. The expert will help the buyer assess and determine which franchised businesses are within the buyer’s budget, and create pro forma financial statements to forecast the performance of the franchise selected.
Brian Scudamore is the Founder & CEO of three companies: 1-800-GOT-JUNK?, WOW 1 DAY PAINTING and You Move Me. These three brands provide exceptional junk removal, painting and moving services with franchises across North America and Australia.
I would say that the single most important factor to consider when buying a franchise would be…
Understanding the change in lifestyle resulting from owning a business.
Business ownership is an investment, both emotionally and financially and is an incredibly difficult thing to do. It can be amazingly rewarding of course but not right away, you need to be prepared to lose money for the first couple of years and that is not something everyone can handle. The rigors of small business ownership can be tough, especially on families and you need to be prepared mentally and financially to take on the lifestyle of a franchisee.
Ellen Rohr is a Business Makeover Expert and Founder of Bare Bones Biz, a venture capital and consulting company. Ellen started her company in 1995 to help folks of all ages turn their big ideas into successful businesses. Ellen is also a successful franchisor, helping launch a plumbing franchise to 47 locations and $40 million in sales in under 2 years. Now, she is the president of Zoom Drain and Sewer, LLC, a new franchise company launching in Summer 2014. She is a columnist for Huffington Post, PHC News, and a contributor to many business journals and trade magazines. She provides “in the trenches” insight that business owners can relate to. She is also the author of four business basics books: “Where Did the Money Go?”, “How Much Should I Charge?”, “The Bare Bones Biz Plan” and “The Weekend Biz Plan”.
The most successful franchisees are not successful because of the franchisor. They are successful because they use their franchise as a powerful tool for fast, profitable growth. A franchise provides branded marketing and proven operating systems. Here’s the most important factor to consider when purchasing a franchise…
The franchise team.
Meet them, talk to them about how they will specifically be helping you grow your business. Information is not implementation. You want to get things done and the franchise promises to help. Who is on the team…and how are they going to help? Ask other franchisees about their onboarding experiences and how the franchise has helped them grow profitably.
“The timing isn’t right, considering the economy.” The timing is always right for acquisition. And right now, the timing is particularly good. Anytime there is a downturn in the economy, people – not you, I hope – buy into the myth that THE economy absolutely dictates YOUR economy. You have options. You can grow your company while others retreat in fear. You can help a brother or a sister out, particularly if the last few years have taken a toll. Create an opportunity that allows someone else to transition to the next phase of their life.
So, fear not. Open up to acquisition as a marketing option.
Of course, if the seller says, “No, thanks,” that’s OK, too. You could make an offer on another company. Acquisition is like sales. Some offers land and a lot don’t. The relationships you develop along the way may continue. A balking seller may change his mind later. Someday, you may find yourself on the other side of the negotiating table, too.
How good can it be? A pal of mine discovered that a competitor’s phone number had been disconnected. He went to the fellow’s house, knocked on the door and asked, “What’s going on?” He discovered his competitor was moving across the country to help out a troubled family member. He was willing to abandon the phone number. My pal arranged that he could assume the number and pay a referral fee on the calls. Win win.
One of my clients tripled the size of his company with a key acquisition, from $1 to $3 million in sales. He told me the key to the deal was his willingness to approach a company that was much bigger than his. “I didn’t know that was weird until others told me that later.”
Yes, you’ll need to be careful. Consult a lawyer before you close the deal, and talk to folks who have made acquisitions. However, you can grow through buying and it’s worth exploring!
Allan Madan is a tax, accounting and finance expert and the Founder of Madan Chartered Accountant. As a CA & CPA, Allan help individuals and businesses solve their tax and accounting problems. He has been featured in leading media outlets and finance publications, such as BNN TV, Financial Post, Huffington Post (Canada), Toronto Star, Globe & Mail, and Slice TV.
The single most important factor to consider when buying a franchise would be…
Franchise Support – without it, failure is inevitable.
Franchisers charge a royalty and fee each month to franchisees. This is not a money-grab, but is meant to cover the Franchiser’s costs for providing marketing, training and accounting support to their franchisees. Consider what would happen if the franchiser provided no support whatsoever: Consumers wouldn’t know you exist, day-to-day operations would be chaotic, and financial records amiss.
So before buying a franchise make 100% sure that the franchiser will be providing you with adequate support in the beginning and throughout your years of ownership. This is the single most important factor to consider when buying a franchise.
David Sobelman is the Co-Founder, Executive Vice President and Managing Partner of Calkain Companies, which is the nation’s leading commercial real estate investment brokerage firm focusing solely on triple net lease commercial real estate. From its meager beginnings of two people, an empty office and no sales, David and his partner have grown the firm to over $9 billion in sales in less than ten years, eight offices throughout the United States as well as over 40 employees. David is a published author of two books, dozens of business-related articles as well as a sought after speaker on real estate topics throughout the United States.
The most important factor to consider when buying a franchise would be…
Not just the location, but how the franchise business fits into a potential location.
Franchisees or potential franchisees always have the best of intentions when buying a franchise concept to make sure that their operations are as successful as the franchisor’s well-written FDD claims. However, with a primary focus on the geography and location of the specific franchise the franchisee will drastically increase their success rate of their pro-forma.
Having the specific site that lends itself well to the demographics of the area, the psychographics (personality, values, opinions, attitudes, interests, and lifestyles) of the area as well as consumer spending, traffic patterns, long term master plan of the region as well as the simple fact of access to a location, should all play a large role in whether or not the franchise should be purchased altogether.
Too often we are brought in to different franchisee’s business operations to evaluate the value of their companies and real estate and quickly determine that their businesses are being impacted solely because where they have chosen to locate. With real estate costs usually being the second highest expense in any franchise operation, whether it be with rent or mortgage expenses, salaries are usually first, franchisees should pay extremely close attention to their fixed base of operations in order to maximize the sales at that one location. Having large swings in sales from location to location can be directly attributed to whether or not the franchisee initially purchased the correct concept.
Ron Holt is the CEO & Founder of Two Maids & A Mop, a provider of residential house cleaning services in twelve markets across six states and even one US district. For the past eleven years, Ron has lived on both sides of the franchising fence; as a multi-unit franchisee and franchisor. Today, Two Maids & A Mop is regarded as one of the industry’s fastest growing companies and highly regarded as the new face of residential house cleaning services nationwide. In 2012, the company was selected as the National Maid Service of the Year by a leading industry association. And in 2013, the company was recognized as the fastest growing cleaning company in America by Inc. Magazine.
After more than one decade of operating independent cleaning businesses across the country, I decided that it was time to begin franchising the Two Maids & A Mop brand. I was essentially operating as a multi-unit franchisee prior to becoming a franchisor. So, my experience as a quasi multi-unit franchisee taught me that franchising certainly has its strengths. And maybe – just maybe – my life could have been much different with the aid of a franchise network. Here is my advice when it comes to investing in a franchise…
For one, franchising with a proven brand eliminates all of the startup mistakes. A franchise brand with time-tested systems automates your business so that mistakes can be significantly reduced. Operating as an entrepreneur allows for your business to dominate the world but also allows for your business to perish due to unforeseen mistakes and failures. This is the primary reason that 90% of franchises are still open after five years.
Secondly, franchising allows you a unique opportunity to work directly with peer business owners. Operating an independent business forces you to think by yourself while operating a franchise allows you to speak directly with business owners with your own industry. This type of support is actually free and encouraged with a franchise system and provides a business owner with valuable information and support that may be very costly as an independent business owner.
Finally, franchising provides a business owner with a thorough business plan. I literally had clue what a business plan was when I first entered the residential cleaning industry. Opening a franchised business provides you with a clear plan of attack that has been proven by lots of other people.
So, going back to the question…. Am I an entrepreneur or a franchisee? This is a huge question that you must answer before deciding the next step. If you’re an entrepreneur, franchising makes no sense. Why? Because entrepreneurs don’t want systems, they enjoy risks and they don’t need a safety net.. A business owner is one of two things: an entrepreneur or a franchisee. If you want systems, if you don’t want to take big risks and if you want a safety net; then you are definitely a franchisee.
Tim Courtney, CFE is Vice President of Franchise Development for home-based cruise franchisor CruiseOne(r). His targeted recruitment efforts focused on minorities, military veterans, retired teachers and other professionals makes CruiseOne consistently rank high in performance and satisfaction according to a poll by Franchise Business Review, and the company ranks in the top one percent among more than 4,000 franchise systems around the world according to Entrepreneur Magazine. A Certified Franchise Executive (CFE) through the International Franchise Association, Tim speaks at various Franchise and Travel Trade events nationwide.
The single most important factor to consider when buying a franchise is…
It is important to have a personal connection and interest to the industry you are pursuing so your business venture will never feel like work and you’re excited for each day at the office. There are several steps to determine your passion and select the right franchise opportunity.
1) Take a self-assessment of your strengths and weaknesses to see what business and business types match your personality and skills. If you’re not a morning person, don’t invest in a coffee shop franchise.
2) Match your passion to your skill set to determine what opportunities will exploit your skills and give you the most success. Also, before you get too far in the process, figure out if you are financially stable to not only make the initial investment, but to have a cash reserve for business development and unexpected expenses necessary to get your business off the ground and running.
3) Don’t jump headfirst into any opportunity and conduct thorough research. Once you identify what industry you want to enter, select the key players and find out if they have opportunities in your area. If so, closely compare their Franchise Disclosure Documents (FDD) side-by-side and compare items such as fees, royalties, restrictions and financial performance representations. Don’t be afraid to ask questions.
4) Conduct interviews with key executives and other franchise owners, past and present. Joining a franchise is like joining a family where everybody supports one another, and it is important to feel comfortable and trust your leaders and colleagues.
5) Don’t be sold your franchise – the decision is yours alone to make and should not be rushed. Before making any final decision, consult with your family and make sure you have their full support.
Kevin Ortner is the CEO of Renters Warehouse America’s most trusted professional landlord and five time honoree of the Inc. 500|5000 list of fastest growing privately held companies. Kevin and his team currently oversee a portfolio of managed properties valued over $750,000 million and $2 billion in residential leasing transactions.
The single most important factor to consider when selecting a franchise is…
Finding an organization or franchise system that is leading the pack, not following.
It’s imperative that the company you are partnering with is innovative, and has plans to continue to innovate. As with any business, if you’re not growing you’re dying, and if you’re not innovating, you’re not growing.
Harold Kestenbaum is a lawyer specializing in franchising and has more than 30 years of experience in franchise law and other matters relating to franchising. Harold’s expertise in being a business franchise lawyer is enhanced by his practical experience in serving as the chief executive officer of a national franchisor and in serving as director of numerous nationally and internationally known franchisors; experiences that are rare and unique in the area of franchise business law. He is also the author of “So You Want To Franchise Your Business,” a step-by-step guide to the franchising process. Learn more about Harold and his work at http://franchiseatty.com.
When it comes to buying a franchise there are numerous factors to consider. Being able to prioritize them would be very helpful to anyone looking to purchase a franchise, however that is not easy. With that in mind, here are three top factors to consider, in no particular order…
1. Investigate the Franchisor.
It is best to choose a franchise in an industry that you are already familiar with, however don’t let that sense of security lure you away from doing your due diligence. Research the person or people who own the franchise, speak to other franchisees within the system, investigate the reputation of the franchise, and make sure to review all documentation about the franchisor. Once you enter into an agreement with a franchisor, you will likely be in that relationship for years, maybe decades to come. So it is important to make sure it is the right fit for you.
2. Choose within your budget.
Calculate what you are able to afford and be wary of overburdening your business with too much borrowed capital. Another issue here to keep in mind, it may be a while before that business sees any profits, so budget is key. When buying a franchise the investment is yours, and even in a great economy, nothing is guaranteed.
3. Get legal advice.
The franchise agreement the franchisor will give you to sign is a crucial document detailing the rights and obligations of you and the franchisor. Ensure a lawyer, with expertise in franchising, goes through the document with you. The laws/regulations in various states can be different, you will want to make sure you are in compliance with them.
Rik Nonelle is the Founder and CEO of Window Genie, which he started as a small local window cleaning business serving a few neighborhoods in Cincinnati, Ohio in 1994. He was a 29 year old Ohio State grad who was already tired of “working for the man.” He developed a business model with franchising in mind so he could allow the opportunity to “be your own boss” to others. He created Window Genie to be easily duplicated and to translate well into other markets. Adding a few services such as window tinting, pressure washing and gutter cleaning allowed Window Genie to tackle the demands of homeowners across the nation and the company has since grown to having over 70 franchise partners in 22 states.
The amount of time a franchise has been in business speaks to a number of important aspects of the business that prospective franchise owners must consider such as:
- A tested, proven business model
- Established branding
- Developed system-wide culture
- Large team of existing franchisees
- National consumer recognition
- Experienced corporate support staff with years of experience
Window Genie celebrates its 20th anniversary this year. We pride ourselves on the fact that we’ve had the time to figure out and know who we are, to know what works, what doesn’t work, and we’ve remained a tight-knit team of entrepreneurs despite immense growth over the years. Growing and improving with the times while staying true to ourselves and the brand has been a major focus throughout the entire Window Genie journey.
Prospective business owners should be wary of franchise opportunities that have little evidence to back up claims of potential success; we let our track record speak for itself and believe other worthwhile franchises would do the same.
John DeHart is the Co-Founder of Nurse Next Door Home Care Services, one of North America’s fastest growing home care franchise systems and is dedicated to celebrating aging. Founded in 2001, Nurse Next Door has more than 90 locations across North America and is fast becoming a globally admired franchisor. John has led Nurse Next Door’s emergence as a successful national home health care brand. Under his leadership, Nurse Next Door has earned a number of prestigious business awards, such as inclusion in Franchise Business Review’s annual list of North America’s 50 Best Franchise Systems with under 50 units; BC Business magazine’s Top 10 employer list for four of the last five years; and being named “Canada’s most admired emerging corporate culture” by Waterstone Human Capital.
The single most important factor to consider when purchasing a franchise is…
Asking ‘why’ – why are you considering franchising?
Are you considering franchising because it allows you to own a business? Is it because of the financial opportunity? Does buying a franchise allow you to fulfill a personal goal, or allow you to live your life’s purpose?
We believe identifying the ‘why’ well before you start the discovery process will help you identify the correct franchise system for you. Even if you’ve picked an industry to research, figuring out your purpose for franchising will help you find the right fit. Of the serviced based franchises, home health care is an industry that has one of the highest projected opportunities for growth. It comes as no surprise that this industry is seeing a huge surge in sales of franchise opportunities. But is this the right fit for all entrepreneurs looking for a good opportunity?
In the home healthcare industry, successful candidates are those who recognize the impact their business has on those who are at the most vulnerable stages of their lives and families that are looking to relieve stress and hire a company that offers peace of mind. So what qualities does this industry, particularly Nurse Next Door, require of those looking to open a home care business? Within the Nurse Next Door family, three key elements continue to show a direct impact on the success of the franchise: belief in our core values, being an exceptional storyteller and understanding when to reach out for help.
The franchise opportunities available in any industry are endless, and although home healthcare is gaining popularity, success rests on your ability to be vulnerable with your clients, build relationships, show your compassion and be resourceful in utilizing the tools available to you.
Steve Papermaster is CEO of Powershift Group, a technology venture development group, and has 30 years of entrepreneurial success founding, growing, acquiring, funding, and investing in innovative global technology companies. His leadership roles also includes founder, Chairman, CEO and/or board member for several publicly traded and private companies including: Appconomy, Moxie Software, Powershift Group, Perficient, Inc. (Nasdaq: PRFT), Vignette Corporation (Nasdaq: VIGN/OTXT), Per Se Technologies/acquired by McKesson (Nasdaq: PSTI/NYSE: MCK); TippingPoint Technologies/acquired by 3Com (Nasdaq: TPTI/COMS/HP), and BSG Corp. Steve also served two terms in the White House as Committee Chair of the President’s Council of Advisors on Science and Technology (PCAST), appointed by President George W. Bush. Steve was named “Entrepreneur of the Year” (awarded by Ernst &Young), and went on to serve as a national judge for “Entrepreneur of the Year”. He also represented the United States as judge and Chairman of World Entrepreneur of the Year.
The single most important factor to consider when purchasing a franchise is…
Knowing your market. And also, knowing when to buy and when to sell.
David Scarola is Vice President of The Alternative Board, the world’s largest peer advisory board and consulting franchise, servicing over 3,000 business owners worldwide. As a large, global network, TAB is affiliated with an extensive range of business professionals. David is responsible for executive oversight of Information Technology, Member Management, and Marketing Operations. In his position, Dave seeks ways to fuse technology with process to build TAB’s brand awareness and community of small business owners.
The single most important factor to consider when buying a franchise is…
Does the franchise opportunity provide the right level of control for you?
Franchise systems can be put into two broad categories. You must consider which of the two fits your personal goals as a business owner.
The first type of franchise is highly controlling. In this category, the franchise owner must follow very strict, step-by-step instructions, with little deviation or creativity. This type of system is geared toward someone who wants the system to define exactly what they should do and how they should do it. This type of franchise is the right choice for the franchise owner who wants to be guided every step of the way.
The other category is a more flexible franchise model. This model provides a certain level of structure, especially for building the business and delivering the service. However, it also allows the franchise owner to run the franchise in a way that matches their personal vision. This is TAB’s model and appeals to what we call the “Freedom Fighter.” These are individuals that have worked as employees for corporations and believe they can do it a better way. While this model offers greater flexibility, it also offers greater risk and a higher-demand of decision-making.
Troy Hazard is an international franchise consultant who has been a franchisee twice and a franchisor, and is the author of the book “Future-Proofing Your Business”. He is also the owner and founder of 11 businesses and has been a leading franchise consultant for 20 years, consulting over 300 brands in 6 countries. Learn more about Troy and his work at http://www.troyhazard.com/.
The single most important factor to consider when buying a franchise is:
Is the franchise right for you?
Don’t just follow the money – follow your heart. Look to do something you love – or that you have an interest in first. Is that was you really want to be doing all day every day? There is no use being a dog washing franchise if you don’t like animals, or a fast food franchise if you have no affinity with cooking or preparing food. Love what you do and your customers will love you. The money is a bi-product of your passion for the business.
Bob Hothem is the Owner of The Alternative Board franchise in Miami Valley. The Alternative Board (TAB) is the world’s largest provider of executive peer advisory boards servicing over 3,000 business owners worldwide. As a large, global network, TAB is affiliated with an extensive range of business professionals.
Having recently gone through the franchise process, my number one consideration for acting on a franchise opportunity would be:
“Is there a structure in place to deliver on the promises made in the sales process?”
Most franchises have viable business models in terms of target markets and customers. And while the business has worked somewhere, at some point—which is why it can develop a franchise system–you must still consider whether the business can be replicated effectively.
Most franchisers can execute on delivery of the product or service it is selling, but what about market entry? Will they actively support you in terms of marketing, pricing model, positioning in the marketplace, PR and social media? Or do they send you home with a 3 ring binder and tell you all the stuff you should do on your own? As I see it, local market positioning is the biggest determinant of success or failure.”
Christopher Conner is President of Franchise Marketing Systems, which has become one of the primary organizations for providing full-service marketing and sales support consulting to clients in all industries. With over a decade of experience in building and developing franchise brands, Franchise Marketing Systems (FMS) continues to pride itself on structuring and modeling various organizations appropriately for replication into new markets. Some of Christopher’s clients include notable brands such as Total Gym (Gravity), Blimpie, COSTCO, Allscripts, and Romeo’s Pizza.
Before one makes that “jump” to buy a franchise, they should consider the following:
1. Get a good understanding of where you are financially, timeline-wise and from an interest standpoint. You need to assess not only yourself, but your financial position, what kind of cash you have in place, what is your liquidity, what is your net worth?
2. Know who YOU are. Before selecting a franchise brand or concept you need to fully understand your own interests, background and business abilities. are your hobbies and interests outside of work or professional life? What are your strengths and weaknesses from a business or personal standpoint?
3. Research the market and as many franchise opportunities as you can. Unless you have a specific company in mind or are using a franchise broker or consultant who is helping you through the process and researching, this could be a lengthy, frustrating process. There are dozens of franchise Web sites and thousands of franchise opportunities out there – there are many sites out there which provide a wide variety of information on franchises.
4. Research your financing options. Once you have made your selection, you may need financing. In fact, even if you don’t need financing, it’s good to understand what your options are and what capital/cash is available for you should you need working capital or resources to launch your franchised business. There are numerous options, including conventional bank loans, SBA guaranteed loans, 401k rollovers, alternative financing channels and home equity loans.
Kamiel Moore is the Director of Online Operations for HomeVestors, a national network of real estate investors and is the No. 1 home buyer in America.
The single most important factor to consider when purchasing a franchise is…
The work/time investment versus the profit and startup cost. There should be some level of passion in the current franchise idea you are looking into buying.
David Coffman is an experienced CPA who is Accredited & Certified in Business Valuation and has valued hundreds of small businesses since 1997. Learn more about David’s work at http://business-valuation-expert.com.
In my opinion, the most important factors to consider when buying a franchise fall under one of two categories…
For an existing (operating) franchise: Does the actual historical, discretionary cash flow support the purchase price? Projected or proforma financial information is often manipulated to look better than it really is. Use tax returns as your source of financial information.
For a new franchise: Is the franchise brand and/or concept well-developed in my market area? Many new franchisees spend most of their resources on franchise fees, build-out costs, and start-up expenses. They have little, if any, resources left to develop the local market.
Brian Clark is the President of Next Day Access, a provider of a number of accessibility products, including American Access wheelchair ramps in addition to stair lifts, pool lifts, ceiling lifts, bathroom safety products and vertical porch lifts for residential and commercial environments. The mission of Next Day Access is to restore quality of life and independent living with a “whole home, whole life” approach. It all started when Brian, alongside brothers David and Paul, founded American Access in 1997 as a wheelchair ramp manufacturer offering personal service on a national scale. With an unwavering focus on meeting customers and serving their needs, the brothers, in October 2011, launched a new franchise business, called Next Day Access, in order to service and grow the existing and established national customer base of American Access.
Buying a franchise isn’t a decision to enter into lightly. Circumstances differ widely based on an individual’s business acumen, financial stability, and personal drive and motivation. Additionally, all franchises are not created equal! The unique parameters and nuances of each specific franchise opportunity need to be skillfully considered from a number of angles. From my vantage point, the single most important factor to consider when buying a franchise is…
Determining a future of sustainable growth.
This requires the buyer to heavily scrutinize the industry he or she is considering and analyze the available information to make a judgment call on projected return, not just in the short term but for decades to come. The weighing of any franchise opportunity, viewed with discernment and a vision for continued long-term growth, ensures a secure foundation for that potential investment.
More practically speaking, the potential franchisee should look for goods or services that point back to a solid customer base – one that is growing and expanding. This will help ensure sustained growth as goods and services become necessary for a particular customer base and are able to ride the wave of economic trends. Franchise opportunities that offer health-related goods and services make strong frontrunners for investment as the U.S. population continues to age in booming numbers. This bright future from the industry perspective equals expansion and the ability for a buyer to build a “fleet” or proverbial “empire” with his or her franchises – a natural progression from proven success in this realm.
Peter Geisheker is the CEO of The Geisheker Group Marketing Firm and is a veteran business marketing consultant with 20+ years of experience.
My advice on the single biggest factor to consider when buying a franchise is…
To ask yourself, is this a legitimate well-known franchise or a scammy “business opportunity” dressed up to look like a franchise?
For risk management, only purchase very well known franchises where most people will instantly recognize the business if you say its name.
Donald Averitt is a 30-year franchise veteran and is also a Certified Franchise Executive (CFE) as certified by the International Franchise Association. Mr. Averitt has sold many franchises for large, National and International Brands. He has consulted with independent businesses to help convert their business into a franchise. He is the author of “Franchise Validator – Knowing What Questions to Ask When Considering Investment in a Franchise Opportunity”. Learn more about Donald and his work at www.franchisevalidator.com.
In terms of the single most important factor in investing in a franchise, what one is actually wanting to buy is…
A PROVEN BLUEPRINT FOR SUCCESS in any given business model.
Just because a particular brand name makes a great pizza, it does not mean they have a proven model for success, or that they can offer the level of support that is consistent with a good (or great) franchisor.
There are so many factors to take into consideration when considering an investment in a franchise opportunity. Among which include profit potential, strength of brand, site search assistance, training, advertising and marketing support, operations support and lifestyle compatibility (i.e.-hours of operation, business model, etc.). It might also include ease of operation, skill set compatibility, competition, product/service obsolescence, growth potential/expansion and culture fit. You get the picture. There are several things to consider over and above franchise cost and return on investment/profit potential.
But if there was one single, most important factor that would be considered the most important of all, it would be LEVEL of SUPPORT. This may be an all-encompassing word to include many of the previously mentioned factors, but most importantly, it would mean Training to LEARN that proven blueprint, and then OPERATIONs support to put that blueprint for success into measurable action. You learn the process, then do as they say. A Franchise model is NOT a place to “do things your way” or to “get creative”. You do it their way and follow their SYSTEM. It is (supposed to be) a proven model for success.
Great system and the support to implement that system (plus enforcement) makes for a successful franchisee. Successful franchisees in turn, make for a successful franchise brand.
Rick Coffey is the Founder and Owner of Barkefellers, an award-winning upscale pet hotel features Lodging, Grooming, Daycare, and Training services, and is a successful entrepreneur with over 35 years of demonstrated achievement in Sales, Sales Management and Business Development. Prior to founding Barkefellers, Rick was a teacher/coach at New Harmony High School. Rick later served as Vice President/Owner of Action Equipment Sales, Inc., a commercial cleaning equipment sales organization, which he co-founded with his father in 1975 and operated along with his brothers until starting Barkefellers in 2009.
When it comes to the most important factor to consider when buying a franchise…
Location is everything.
By location, I am not just talking about the physical address — I am talking about all the factors that go into creating an attractive, lucrative site for a business.
As the founder and owner of Barkefellers’ upscale pet hotels, I am always thinking about where to open new franchises. Two of the most important considerations are exposure and ease of access. Business owners have to find places that are convenient. The most beautiful facility in the world won’t attract customers if no-one knows it is there, or if the location is difficult to get to.
However, appearances definitely matter. First impressions are as important for businesses as they are for people. Franchise owners should consider curb appeal from the front, as well as the immediate impression upon entering the facility. Both are key to drawing customers in and encouraging them to stay. Along the same lines, sanitation and housekeeping are also important considerations. An unclean facility reflects badly on the entire franchise, not just your specific location.
For us at Barkefellers, we also factor variety into our decision-making process. We look for locations that can accommodate different suite types, to conform to the parents’ and dogs’ preferences. For example, we offer indoor/outdoor suites for the athletic pup, and luxury suites for the more pampered pooch. The more people you can appeal to, the wider your potential customer base and the happier they will feel.
Finally, customer service can make-or-break a business, regardless of its location. A friendly, responsive, and caring staff will keep customers coming back, and lead them to recommend your facility to others. You have to cultivate an atmosphere of trust, especially when caring for people’s’ beloved pets.
Chade Life is the Founder and President of Leather Medic, Inc., a mobile service business specializing in leather repair and refinishing. Currently, there are 22 independent Leather Medic, Inc. franchises located in major cities across the United States
In my experience, the most overlooked factor when starting a small business or purchasing a franchise is…
The simple question of asking yourself, “does this fit my personality”?
Potential business owners need to seek out advise/help from more than one confidant and streamline their thought-process into finding a business that they have or can develop a passion for. It might be hard to accept the answers to this question because it could get personal & effect the potential small business or franchise owner’s ego but it’s the most important first step.
I experienced this dilemma first-hand. After years of owning a different franchise, I realized that my business was not the right fit for me. This was a tough pill to swallow however, it eventually led me to identify what my personality needs are & inspired me to start my Leather Medic company which grew to become a franchise opportunity for others.
Through my experience as a previous franchise owner, I discovered my personality enjoyed teaching and solving problems in order to enjoy other people’s success. I also realized that I thrived at being in control but not controlling. I had many lessons learned with owning my previous franchise and sought out ways to resolve these issues with the Leather Medic, Inc. franchise ~ not only for my benefit but for the benefit of my Leather Medic franchisee owners as well. Starting a small business or purchasing a franchise that best fits your personality is the first step to success.
Mike Kawula is an Author, Entrepreneur and Founder of Self Employed King; an online community of vetted experts who provide training and support for local business owners.
The single most important part of buying a Franchise is…
The validation part.
During validation you should call as many franchisees as possible to either validate or invalidate any assumptions you have about the business.
Typically a franchisor or franchise broker will provide you with a list of recommended franchisees to call, BUT you should go much further than the few they give you.
The one’s they share tend to be the one’s who are obviously doing well. Go further now.
Call every franchisee and call previous franchisees. Their information is in the FDD (Franchise Disclosure Document) (use to be called the UFOC).
Come up with a list of 20 questions you’d like to know about owning the business. Ask not only about the good, but the struggles and obstacles you should be prepared for.
Having owned 2 successful franchises and validating many others, I find this the most important part that is normally either overlooked or done poorly.
Take the time and validate or invalidate assumptions to protect your investment.
Kevin Hoult is an SBA certified business adviser at several SBA Small Business Development Centers including Western Washington University’s Small Business Development Center. Building on his experience in the retail, service and software industries, Kevin earned an MBA in 2001. In his current work, Kevin is particularly passionate about entrepreneurship, bringing technology into business space, creating strategic growth and supporting excellence in operations. Learn more about Kevin and his work at http://kevinhoultmba.blogspot.com.
The single most important factor to consider when purchasing a franchise is…
A full understanding of operating costs.
Franchisors generally ask a franchisee to pay fees above and beyond traditional business operating costs and most are familiar with the basics, e.g., franchise fees, royalties and advertising or marketing fees. Some franchisors wish further degrees of control over, or financial participation in, a franchisee’s operation.
A franchisee might be asked to sign a head lease (where the franchisor has leased the premises and then sublets to the franchisee), to pay percentage rent (once a target sales figure has been reached, to pay the landlord the greater of a percentage of your gross sales or the stated lease rate), be required to purchase identity items (paper products, uniforms, point of sale materials or exterior signs – sometimes frequently updated) or be subject to tying (purchasing one product as a condition to the sale of another)
These factors can have a significant impact on a franchisee, especially for an operator with a location that experiences less than typical volumes. An operator in New York City might not even notice the impact of these additional costs on the bottom line, where as an operator in a small rural community might be devastated.
Gary Tuch is the Co-founder, along with is brother, of Professor Egghead Science Academy. Professor Egghead Science Academy offers cool science and engineering after school classes, camps, parties and workshops for kids. It is a national franchise and the only science academy in the world for kids.
The most important factor one should consider in buying a franchise is…
“Can you see yourself doing it?”
Between the FDD and weeks/months of talks the franchisee should have all the facts they need to make an informed business decision. The one that won’t come up in a brochure or FDD is whether or not they can see themselves doing the work.
Picture wearing the logo, talking to friends and family about it, etc. If that looks good – and the Franchise is on the up and up – then you’re going to enjoy your new career path!
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