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Entering the world of franchising is like jumping off a high dive into the ocean. There are many different industries to consider and all have their own story to sell.
It’s difficult to peruse a website or a scan a piece of paper to understand completely the true value of the business and if it is the sector in which you want to invest.
I have worked closely with franchisees for more than 14 years and have sold franchises in the food service industry. I’ve learned a lot about the process and I know how important it is for all parties to find the right “fit.”
There are some crucial points that one should examine before buying into a franchise. I have dealt with all of them during the years.
I have narrowed the advice down to the following 4 P’s to consider when evaluating a franchise.
This is arguably the most important point. Buy into a company or product you love. You’d be surprised about how many franchised businesses and products you interact with each day. Consider the dry cleaner where you take your clothes, the coffee shop where you get your morning cup of jo, the sub sandwich shop you go to for lunch, or the gym at which you work out. Look into the businesses and brands you love.
This is a whole separate post on its own, but it’s also important to think about the longevity of a product. Is it just a fad or is it forever? Sometimes people can get caught up into a cool, new trend that might be successful for the first year or two, but fizzle longer-term.
Franchises come in different shapes and sizes. There is always something that can blend into your financial situation. Every franchisor structures the agreement differently, however, so what may seem like a great buy initially may have hidden costs or requirements. Here are some of the key questions you want to ask as you are evaluating opportunities:
- What is the length of agreement?
- What are the royalty fees?
- How much are the initial franchise fees?
- How much will I be required to pay in marketing and operating costs?
- What is the cash on cash return, meaning how much am I investing vs. overall sales and income
When buying into a franchise, you are not just buying a brand or a product. You also are buying into a team of people to support you in building your own business. As with any business, it is important to mesh with whom you work.
You can gather a lot from your initial inquiry. Is the franchise responsive? Did you get a personal phone call or an email?
Ask to meet them and to interview existing franchise owners. Explore all support teams within the organization – marketing, finance, training, support, business consultants, etc. These people will be your most important asset to building and growing your business, so it’s important you like them.
I’d also encourage you to talk with the owners and leadership team to understand their plan for the future of the business.
This all leads me to my last point….
Owning your own business is tough. The things that can go wrong at all hours of the day and night will. It’s important to think through those situations and make sure you have the staff and support structure in place to help you. Let’s face it: You can’t be there all of the time and you may not always have a solution.
Some franchise businesses have a process for how problems should be handled through a hotline, or other support system. That could be helpful, but I like to know I have an actual person to call when I need help.
When you are talking with a franchise, ask about their process for emergencies or unexpected problems. With whom you will work when an issue arises or when you need advice.
Be certain you understand the backend support systems on which that the business operates. These will be matters such as accounting, sales tracking, training and other essential events.
Once you’ve gathered all the information, take some time to do additional research. Then evaluate all of your options side-by-side and follow-up with any additional questions. You’re making a big investment. You should be 100 percent confident with your decision.