Franchise FAQ: Buying a Franchise and Working with a Franchise Consultant

A franchise is a licensing relationship: a franchisor licenses its brand, operating system and ongoing support to a franchisee, who owns and runs the local business. In return, the franchisee pays an initial franchise fee and an ongoing royalty, which is almost always a percentage of revenue.

The International Franchise Association describes franchising as a method of expanding a business and distributing goods and services through a licensing relationship. The franchisor typically specifies the products and services offered and provides training, marketing and operational support.

There are more than 3,000 franchise brands in the U.S., and restaurants are only one part of the market. Service franchises with a repeatable process and recurring customers are among the fastest growing, including health and wellness, beauty, fitness, home and commercial services, senior care, children’s education, automotive and pet services.

Franchises also differ in how involved the owner is and whether the business needs a storefront. Compare franchise business models.

Franchising suits people who want to own a business but would rather build on a proven system than invent one. The franchisor provides the brand, marketing, operations and back-office processes, which removes much of the trial and error of a start-up. In exchange, you follow the system and pay a royalty.

Consistency is a big reason franchising works, so if you want full creative control over your products, pricing and processes, an independent business may suit you better. A good franchise consultant will help you weigh that honestly before you invest.

Franchise owners generally take one of three roles: owner-operator, executive owner or semi-active owner (often called semi-absentee).

• Owner-operator: you work in the business every day and are its main point of contact. Common in home and personal services; sometimes called the self-employment option.
• Executive owner: you lead the business full time through a manager and team, focusing on performance, finances, hiring and growth.
• Semi-active owner: a general manager runs daily operations while you lead the business part time, often while keeping your job. You still lead it; you just aren’t there every day.

Choosing your role is the most important decision you make before looking at brands. How franchise business models compare.

There is rarely a perfect time; the right time depends more on your finances, goals and readiness than on the economy. Many lasting franchise brands grew through recessions, and essential services such as home services, senior care, cleaning and restoration see steady demand in most conditions.

What matters most is thorough due diligence: understanding a brand’s economics, validating with current franchisees and having enough working capital. Over 10 years, David Busker has guided candidates through strong and weak economies and tight and loose labor markets.

Some franchises do fail, and the most common reason is that the owner runs out of working capital before the business reaches break-even, not a flaw in the system. Other risks include a poor fit between the owner’s skills and the business model, a weak territory, a brand with unhappy franchisees, and underestimating how long the ramp-up takes.

You reduce these risks by reading the Franchise Disclosure Document carefully, talking with current franchisees, building conservative projections with your own accountant or advisor and keeping a capital cushion. How to validate a franchise.

A franchise consultant helps you decide whether franchise ownership fits your goals, matches you with brands that fit your criteria, and guides you through researching them. David Busker, founder of FranchiseVision and part of the FranChoice network, starts by clarifying your goals, investment level and lifestyle criteria, then introduces brands that fit and have open territory in your market.

He then guides you through each step of due diligence, from reading the Franchise Disclosure Document and preparing for validation calls to Discovery Day. Consultants in the FranChoice network work with hundreds of brands across industries, from new concepts to long-established ones.

No. David Busker does not make financial performance representations about any franchise brand and does not prepare projections for a specific franchise. Under the FTC Franchise Rule, any financial performance representation must appear in Item 19 of the franchisor’s Franchise Disclosure Document.

He can speak generally about how different categories of franchises work. For a specific brand, review its Item 19 (if it provides one), ask current franchisees about their experience during validation calls, and build your own projections with your accountant or financial advisor.

Nothing. David Busker’s services are free to candidates, and using a consultant does not increase the cost of your franchise. Franchisors pay the consultant a fee only if you sign a franchise agreement with a brand the consultant introduced, much as companies pay executive recruiters.

Every franchisee pays the same franchise fee whether or not they used a consultant. David is not a sales agent for any brand, and sometimes his honest advice is not to buy. What the process does require is your time to research brands properly.

Consultants are paid by franchisors, so it’s a fair question. Through the FranChoice network, David Busker works with hundreds of brands across nearly every industry, so he can match candidates on fit rather than from a short list. He is paid only if you sign with a brand, so steering you toward a poor fit works against him too: unhappy franchisees don’t stay in business or send referrals.

No. Working with one franchise consultant you trust is far better than working with several at once. Because each consultant typically recommends 3 or 4 brands at a time, it can seem as if more consultants would mean more options, but in practice it backfires.

Many brands work with competing consultant networks, so different consultants often introduce you to the same brand. That causes confusion over who introduced you, can create contractual conflicts with the franchisor, and makes your research harder for everyone involved, including you.

A single consultant can work through recommendations with you, adjust them when something doesn’t fit, and keep filtering until you find the right match. If the first set of brands isn’t right, that’s a normal part of the process, not a reason to add another consultant.

Three things set David Busker apart:

1. Executive, finance and real estate background. He is a former CEO, CFO and CPA with a significant real estate background, and he brings that practical experience to helping every candidate start a business, from understanding funding options and working with lenders to real estate and lease questions.
2. He has been through the full franchise life cycle. He started, operated and sold a franchise business himself.
3. Ten years of experience. He has worked with more than 1,000 candidates of every type, through all kinds of economic and labor conditions.

He is also the author of Franchise Vision: Transform Your Future Through Franchise Ownership and a contributor at Entrepreneur.com.

Yes. Most of David Busker’s candidates live outside his home market of St. Louis. He works with candidates across the United States and Canada, most often in Dallas, Houston, Atlanta, Charlotte, Tampa, Denver, Phoenix, Nashville and Toronto. Because territory availability is local, he checks your exact market before introducing any brand. See the areas we serve.

Most candidates complete the process in 4 to 8 weeks, from the first consultation to a decision. Along the way you set your criteria, review matched brands, read each finalist’s Franchise Disclosure Document (which you must receive at least 14 calendar days before signing), hold validation calls with franchisees, review the numbers with your own advisors and attend Discovery Day. Some candidates take longer while they arrange funding or find real estate, and there is never pressure to rush. See the process step by step.

Most service franchises cost about $75,000 to $350,000 per unit or territory to open, while semi-active models typically start around $250,000. Item 7 of each brand’s Franchise Disclosure Document estimates the total initial investment, including the franchise fee, equipment or buildout, and working capital.

These are broad guidelines and exclude restaurants, hotels and other concepts that require standalone real estate. Franchise fees explained.

It varies widely. Many franchises require as little as $50,000 in liquid capital and $150,000 in net worth, while larger and multi-unit opportunities require much more. Each brand sets its own minimums.

Many of the candidates David Busker works with have about $100,000 or more in liquid capital and $1 million to $2 million in net worth, but he regularly helps candidates with less find a good fit, often by combining financing options. Candidates with significant wealth often look at multiple units or semi-active models.

Most franchisees combine two or more sources of capital. The most common are:

• Cash or securities: the simplest and lowest-risk option.
• Portfolio loan: borrowing against an investment portfolio without selling it.
• Home equity line of credit (HELOC).
• 401(k) or IRA rollover (ROBS): a structure the IRS allows when set up correctly through a specialized provider, letting you invest retirement funds in your business without debt.
• SBA 7(a) loan: a bank loan partly guaranteed by the U.S. Small Business Administration; start-ups generally need to inject about 10% of the project cost.
• Franchisor financing, partners or specialty lenders.

David Busker can refer you to franchise funding specialists. This is general information, not financial advice, so review your options with your own financial, tax and legal advisors. How to finance a franchise: 9 options compared.

The Franchise Disclosure Document is the legal disclosure every franchisor in the U.S. must give prospective franchisees. Under the FTC Franchise Rule, you must receive it at least 14 calendar days before you sign a binding agreement or pay any money.

The FDD has 23 items. Key ones include Item 5 (initial fees), Item 6 (ongoing fees), Item 7 (estimated initial investment), Item 12 (territory), Item 19 (financial performance, if provided), Item 20 (franchise outlets and turnover) and Item 21 (the franchisor’s financial statements). Have a franchise attorney review it before you sign.

Often, yes, with a semi-active model, where a general manager runs daily operations and you lead the business part time. The first months usually take more of your time while you set up, hire and train. Many executives use this approach to build a business before leaving a corporate role. Check your employment agreement for any conflicts first. Semi-active models explained.

It depends on the model. Many service franchises are home-based, with territories defined by population or households. Location-based brands provide site selection support, such as demographic data and broker referrals, and usually protect a radius around your location once you sign a lease. Item 12 of the FDD explains your territory rights. How franchise territories work.

Validation means talking with current franchisees to confirm what the franchisor has told you, especially about economics, support and the owner’s role. Discovery Day, also called Confirmation Day, is a visit with the franchisor’s leadership near the end of the process to confirm culture and fit. Go when you are close to a yes, then decide within a few days. How to prepare for validation and Discovery Day.