Original Post from FranNet.com
FranNet evaluates the top 25 things to look for when franchise shopping
Over the course of 25 years, FranNet has guided a lot of interested franchise owners towards the right fit. Our ability to match entrepreneurs with the right opportunities has helped create thousands of businesses, new careers and tens of thousands of jobs.
Our clients have had a lot of questions along the way.
“Buying a business is a life-changing decision, and you’ll want to know as much as you can about a franchise before you buy into it,” says Jania Bailey, FranNet President and COO. “You’ll also want to take a critical look at yourself. Like any career, there are good and bad fits. What I try to do is make sure that the right person winds up buying the right business so that they’ll be happy and successful.”
FranNet has plenty of advice to offer potential franchisees. To start, here are 25 tips:
1. Franchising is more than French fries. A lot of people who think of franchises automatically think of restaurants — or maybe hotels. That was a fairly accurate portrait of the franchise industry 30 years ago, but there are many new kinds of opportunities today. We’ve found that professionals often find the most success and satisfaction working in a completely new field.
2. Franchising doesn’t have to be expensive. It’s true that many of the best-known franchises are bricks-and-mortar businesses with high investment costs, but many of the fastest-growing and highest-rated franchises are home-based businesses with just one or two employees, low overhead and higher profit margins.
3. Evaluate your skills. Not every person is a good fit for every franchise. Understanding your personality and skills and how they would fit with a franchise can help you guarantee success. The better the fit, the more fun the business will be to run.
4. Have working capital. Make sure you have a buffer. New businesses take a little time to start generating profits, and you’ll want to have cash on hand to cover expenses and pay for extra marketing. It’s great to avoid debt, but it can be worth taking out an SBA loan in order to preserve working capital.
5. Plan on more marketing. Whatever the franchise system requires for a marketing budget, you should increase that number. There is a direct correlation between how much you spend and how successful your business will be. Don’t stop at the franchise system’s minimum suggested budget — or even its average budget.
6. Talk to top performers. Nobody wants to be average or low-performing, talk to at least two of the top 10 franchisees in the system and find what makes them successful.
7. Evaluate systems. When you buy a franchise, you are buying business systems. Efficient systems are what often gives a franchise an advantage over a mom and pop operation. Look into how well documented the systems are and how tested and proven they are, including the point of sale system. The better the system, the better the franchise.
8. Look for franchises that have good resale value. Some types of businesses — particularly bricks-and-mortar businesses — can be resold for a higher price.
9. Research news items about a franchise. Growing systems often produce positive PR. Do online research. Look for press releases, news articles and blog posts.
10. Research competitors. Is the franchise that you are considering ahead of the curve in its industry?
11. Research customer reviews. One of the best ways to see how a business is doing is to see how happy its customers are. Upset customers tend to be more vocal, and can leave a nasty online trail. On the flip side, an abundance of happy customer comments is a really good sign that a business is successful.
12. Look at social media presence. How active is the company on Facebook and Twitter? Are they using Pinterest yet? Social media is an important area for companies and those who don’t use it are leaving themselves at a big disadvantage.
13. Talk to your spouse or partner. It’s surprising how far some people can get into the process of investigating a business before they let their spouse in on the plan. This is a big decision — often your spouse will wind up helping you run the business. They will want to play a role in the decision.
14. Think long term. Franchise agreements generally last for 10 to 20 years, so it’s a lot like getting married. Make sure this is a company you’ll still be happy to be a part of once the diamond anniversary rolls around.
15. Learn how to speak bank. Despite what you might read in the news, there are a lot of funding options for franchises. Loans are available, but make sure you do enough research or work with a consultant to learn about financing options so you can conserve your working capital.
16. Look for earnings claims. Profitable and successful franchise systems publish Item 19 earnings claims in their franchise disclosure document or FDD. Franchising is regulated by the FTC which is strict on the financial information franchise systems can release. Not all franchises can meet the FTC guidelines which may be a sign they are not profitable so steer towards franchise systems with published earnings claims.
17. Educate yourself about franchising. It’s a very structured business model, and some of the language and the contractual relationships can seem strange. Make sure to learn what is and isn’t normal in the industry.
18. Mystery shop. If you’re considering investing in a bricks-and-mortar franchise, drop in as a customer. What is the experience like? Are the bathrooms clean? How well run is it? If you’re considering a carpet-cleaning business, hire them for a small job. Do they do quality work? Did they send someone that you felt comfortable letting into your house?
19. Evaluate the training and ongoing support. Every franchise offers initial training, but ongoing support is what separates a weak system from one that is outstanding.
20. Evaluate expansion possibilities. Assuming your first franchise is a big success, you’ll probably want to open a second or third location. Is there room to expand in your market?
21. Get professional advice on site selection. Many retail businesses require a high level of nearby car or foot traffic in order to succeed, but some business owners will set themselves up for failure by going for a location with cheaper rent and less visibility. Other businesses don’t rely as much on foot traffic, and locating one of these in a pricey high-traffic area just means that you’re paying too much for your lease.
22. Don’t be afraid to ask questions. There is no such thing as a stupid question — not when you are considering a life-altering decision. Franchisors owe you solid answers before you invest in their concept.
23. Visit as many locations as you can in person. What does a successful franchise look like? What does a typical franchise look like? Get a feel for how professional different franchisees are. How they treat the brand will affect the value of your business.
24. Get to know the leadership. Research the history and experience of the franchise system’s officers. What were they doing before they got involved with the company? Do they have a background that will allow them to guide franchisees to success?
25. Pay attention to passion. How passionate are the executives, the franchise owners and the customers? A system that is full of passion is a system with positive momentum.
We hope that gives you a good start as you begin to explore. FranNet consultants can guide you through these steps and many more.
For more information about FranNet, visit www.frannet.com.
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