You have given it a lot of thought. You have carefully considered the alternatives. You have decided you have what it takes. You want your own business. More specifically, you’ve decided you want to own a franchise.
So, what’s next? What can you expect from franchise companies? How will you know when you’ve found the right one?
BEFORE YOU BEGIN
It all begins with turning inward. What are your strengths and weaknesses? What do you like to do and what makes you happy in a work environment? What makes you unhappy or frustrated? Do you like sales, working with customers, managing employees? Are you technologically up-to-date and comfortable with change? What is your tolerance for risk? How does the economy come into play?
Next, list the characteristics that you want in a franchise business. How important are financial results? How quickly do you need to draw and income? What is your realistic investment range? What are your feelings about risk? Status? How many hours per week are you willing to work (and what schedule do you want to have)? How are you spending your time? Are you looking for an opportunity that you will focus on full time, or will you keep your job and ease into the business, leaving your current position at income replacement?
Before you connect with a single franchisor, think about these important parameters. Start with a clear vision of the ideal match. You’ll have a picture of what the future will be like for you as a business owner. Now you just need a process to find and investigate individual franchise companies and determine if they fit perfectly into your plans. Simple, right?
FINDING FRANCHISE COMPANIES
There are many sources of information concerning franchise opportunities. These range from books and periodicals to advertisements to a wealth of sites on the internet. There are thousands of possible franchise opportunities for you to consider. Sorting through all these options can be a daunting task. And it can take many hours of research to realize a single opportunity does not match up.
It is important to narrow the field early as to not waste time on poor matches. Consider the characteristics you’ve identified above. Look at industry groups or sub-groups first rather than individual companies. Does a particular industry group appear to match the characteristics that are important to you?
For example, let’s say you’ve decided that you want a franchise that will involve working normal business hours, that will have few employees, and you seek a total investment of $100,000 or less. These criteria will cause you to eliminate many retail and food franchise industry segments due to issues with hours and employees. You can then further reduce the mix through looking at investment requirements.
If you don’t want to do this yourself, please call me. I can help you focus and not waste time. The bottom line is that you need to find companies to investigate that appear to have what you are looking for. Once you’ve identified some companies that look attractive on the surface, it’s time to learn more about them.
Step One – Informational Overviews
The franchisor will begin by providing you with overview information on the company (typically a brochure and video package). They will then ask you to provide them with additional information on you (by filling out a questionnaire) to determine if you have the general characteristics that they are looking for. Assuming that each party is still interested based on this information exchange, you will proceed to the next step.
Step Two – Franchise Disclosure Document
This document, commonly referred to as the FDD, is mandated by the Federal Trade Commission and provides you a wealth of information about the franchisor. The form and composition of the document is standard with any franchisor and must include information on a variety of topics you need to understand. The major subject areas include:
1. The history of the franchise and its officers and directors.
2. A complete description of the business to be franchised.
3. All costs and fees that you will be subject to under the agreement.
4. All obligations of either party to the other during the term of the agreement and thereafter.
5. Any relevant litigation history of the company or its officers.
6. Any business failures, ownership transfers, franchise agreement terminations or other information relating to the success rate of the existing units in the system.
7. Audited financial statements for the previous three years for the franchise company.
8. A list of the existing franchisees, including phone numbers.
9. A complete copy of the actual franchise agreement document.
A few franchisors also include financial performance representations in the FDD document. Though they are not required to do so, this can be a real time saver for you if it is included. Even if it is included in the FDD, it is still imperative that you discuss this subject with franchisees during your fact-finding calls and visits. When working with me I provide you a step-by-step process on how to put together accurate cash flow projections, utilizing existing franchisees.
Step Three – Franchisee Calls and Visits
The most valuable source of information on any franchise system is the existing franchisees. Whatever you find the prevailing attitude of the existing franchisees on any issue to be, it will almost certainly be your attitude on the issue if you decide to become a franchisee. Visit with enough existing franchisees to ensure you have a sense of the prevailing attitudes of the group.
Though you want to find that most of the franchisees are happy and supportive of the franchisor, sometimes they’re not. Listen to any complaints, but also try to determine what makes this franchisee different from the rest. If you find you identify with the positive ones, then you are on the right track. If you find that you are more like the person who is unhappy, then its time to look for other options.
I provide prospective franchisees a copy of The Franchisee Playbook that I have co-authored with details on this critical step. But the following list covers the principal areas you want to investigate during these calls:
Training Programs – How well do the initial training programs and support prepare the franchisees for opening and running their business?
Opening Support – How easy did the franchisor make the process of getting the first unit open and operating?
Ongoing Support – How effective is the ongoing support of the franchisor in terms of helping franchisees deal with the everyday problems of running their business?
Marketing Programs – Most franchisors collect marketing dollars from every franchisee into a pool that is spent to promote the brand. Are the franchisees supportive of the way this process is handled?
Purchasing Power – Does the franchisor use the collective buying power of the total system to get discounts on supplies and inventory beyond what an independent operator could achieve?
Franchisor/Franchisee Relations – Is the franchisor supportive, caring, focused on their success, responsive, effective, organized, and trustworthy?
Investment – The FDD will give you a wide range for the total investment required. Use the franchisee discussions to narrow that down to a reasonable and conservative estimate of how much capital you will need.
Earnings – It is critical that you have a strong sense of just where the average unit is in terms of earnings. How much money does the typical unit make? How soon does a typical unit start making money after opening? Using my proven system will result in the most accurate understanding.
It is always a good idea to bring up the subject of earnings as the last point in your franchisee visits. Most people are reluctant to discuss their income with strangers and you will find the franchisees are more willing to cover this subject after you have spent some time visiting with them. At that point they know you’re not a competitor trying to get information but rather a serious prospective franchisee who will need the information to proceed.
Step Four – Meet the Franchisor
At some point in the process of investigation, you will want to have personal meetings with key personnel of the franchise company. This might be possible in your local market, it might be virtual, or you may need to travel to the headquarters of the franchisor. Many franchisors facilitate this need by holding what are referred to as “Discovery Day” or “Meet the Team Day”. These are structured events where you can go to a specified location and know that many of the key franchisor staff will be available.
Be sure to get to know those people you will be working most closely with in the building of your business. You would expect the President of the company to be an impressive person but that’s not who will be answering your call when you have a problem. Find out who will be providing the operational support and training directly to you and form an opinion about their competence. Make sure that any remaining questions or issues you may have are addressed at this meeting.
Step Five – Make a Decision
If you have been diligent, the entire investigation process outlined above should have taken about four to eight weeks to complete. You have now finished your investigation and have all the information you need to decide if this franchise is right for you. It either is or it isn’t, and you’ll know. In either case, it is time to make a decision and move on. If this company has everything you wanted, do it. If it doesn’t, eliminate it, and move on until you find the franchise that’s right for you.
The process is detailed. If you want support, please feel free to reach out to me at 443.977.8550.
