Franchising is a wonderful way to go into business for yourself. So many things have already been established for your benefit: branding, marketing, processes, products, systems, etc. Building a business through franchising has been so successful that franchised businesses generate jobs for more than 18 million Americans and account for 10 percent of the private-sector economic output, according to a study recently released by the International Franchise Association Educational Foundation.
If you are convinced that you want to investigate franchising for yournext career move, how do you go about finding just the right one?
This is one subject about which much as been written. Everyone has their own version of what you need to do to find that one, perfect concept for you and for your market.
Starting a franchise business is a huge decision, likely combining changes in career, industry and your financial investment portfolio. So here is my recommended approach to determining what to look for in a franchise that will meet your needs, expectations and goals. A qualified franchise consultant can guide you through this process but even if you choose to go it alone, these steps are necessary to investigate a franchise.
STEP 1 – DEFINE YOUR CRITERIA
Before you start looking at franchises, take stock of that most important component of the equation – YOU.
- What skills, experience and interests do you have?
- Consider your past jobs and determine what you liked best and least about them; then make a list of your strengths and weaknesses.
- How much money can you invest and how much would you like to make?
- Are you comfortable managing others or would you prefer to work alone?
- Where do you want to work? Are you willing to relocate?
- What hours are you willing to work while the business ramps up and what lifestyle expectations do you have after the business is established?
- How do you feel about selling and the sales process?
- What part of any business do you love and what do you dislike?
By starting with a list of what you have to offer and what you need from a business, you can create a strategy and model for your research.
STEP 2 – START WITH A BLANK SLATE
Keep an open mind. Whether (at Step 1) you use a resource like a franchise consultant or do your own franchise research via the Internet, it is best to keep all options open when considering a franchise. Getting stuck on preconceived notions about brands can lead you to miss an opportunity with a brand that fits your desired role and lifestyle perfectly.
An inexperienced person may approach the process by thinking, “Well, I love donuts, so how about a donut franchise?” And after spending days or weeks of research on Krispy Kreme, Dunkin’ Donuts and others, the individual may find she doesn’t have the required capital, the territory she wants is not available or she would have to give up weekends if owning a food franchise.
“Your outer journey may contain a million steps; your inner journey only has one: the step you are taking right now.” – Eckhart Tolle
Another ineffective way to begin your franchise research is to lock yourself into one or two concepts. If you think, “I’ll only look at ice cream and exercise franchises,” you may miss finding that that gem of a concept that would mesh perfectly with your needs.
With thousands of franchise companies available, keeping an open mind is the best strategy you can employ to get on the ground floor of that new, hot concept or to find something that will really take off in your market.
STEP 3 – FRANCHISOR DUE DILIGENCE
Let’s say you’ve found an assortment of franchises that look promising or have been presented closely matched brands by your consultant. What do you do next?
Contact the franchisors and request information about their concepts. You will probably get called from someone in the franchise development department who will measure your interest and advise you if the territory you seek is available. You will want to thoroughly view the website information and any brochures and videos they send you.
Keep notes on your impressions. Are their materials professional and up-to-date? Are you treated courteously by a friendly and knowledgeable member of the corporate office? Are your questions and concerns answered to your satisfaction?
What you see from the company at this time may be an indication of the type of support you would receive as a franchisee in their system.
STEP 4 – FRANCHISE DISCLOSURE DOCUMENT (FDD)
The franchisor will soon provide you with the company’s Franchise Disclosure Document (FDD), a document every franchise in the United States is required to provide as regulated by the Federal Trade Commission. The FDD will provide the history of the company, the training and marketing programs, and what costs, royalties and fees you will be required to pay.
Some franchisors also provide earnings claims in Item 19 of the FDD that will help you estimate the potential of the business.
The FDD is full of information about the franchise and it clearly explains the responsibilities of the franchisee (you) and the franchisor. Your FDD review and understanding is a very significant part of the research process.
By paying attention to what you discover in a company’s FDD, you can weed out franchises that just don’t measure up. Some warning signs of a franchise that is facing challenges are extensive litigation with franchisees or a closing rate of units greater than what’s being opened.
Use the information uncovered in Steps 3 and 4 to formulate your own financial projections and build in conservative assumptions to gain confidence and mitigate risk moving forward.
STEP 5 – FRANCHISEE VALIDATION
This should be considered the most important step of your research process and the one that potential franchisees often will shortcut or avoid. This step is of monumental importance when judging the likelihood of finding happiness in a particular franchise: CALL EXISTING FRANCHISEES. A list of all franchisees and their contact information is disclosed in Item 20 of the FDD.
Existing franchisees are your best source of information for finding out what really happens in a business on a day-to-day basis. You can ask what they like and dislike about the business, if they are happy with corporate support, and even get a feel for the type of earnings a franchise makes.
Gather a variety of opinions and you’ll get a clear picture of not only the franchise itself but of how you would fit into the organization culturally. This is also a reason why this step is so significant in making a definitive decision.
STEP 6 – NARROW THE CHOICES
Your next step is to narrow down your choices. Okay, maybe it’s not all that easy. Let’s review what you’ve done so far:
- Made a list of your strengths, experiences and needs – set your criteria
- While keeping an open mind, found some companies that look promising
- Requested information and completed your projections
- Reviewed the FDD
- Talked with existing franchisees
Hopefully, you have found one or more companies that will meet your needs.
When you’ve made it this far, it’s time to make a decision about which of the finalists is your best path forward. Trust your instincts based on all the data you’ve accumulated to this point. Once you make that decision, it is time for Discovery Day. This is an on-site meeting with a franchisor. At this meeting you will be introduced to the top people in the home office and you may make a visit to a local franchisee, allowing you to ask even more questions and maybe to get some hands-on experience with the business.
Discovery Days are very interesting and exciting. When you leave, you will have a good understanding of the franchise. Don’t forget that this is a two-way street. They’ll be evaluating you as thoroughly as you evaluate their business.
STEP 7 – FINAL DECISION
The last step, of course, is making the final decision. Like any major decision, you will be filled with anticipation, excitement and fear. Those are very normal feelings. Making a positive change for your future should certainly evoke big emotions–so trust your criteria and due diligence, and don’t settle until you find a franchise that meets all of your criteria.
If you have done your homework and followed the steps as outlined, you should be very comfortable with your decision. Congratulations – you’re ready to be a franchisee!
David Busker is a Franchise Consultant with FranChoice, the premier national network of franchise consultants. David helps candidates exploring business ownership through franchising to set their criteria and then matches them with the perfect franchise. You can learn more about David at FranChoice.
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