Want to Buy a Franchise: Learn to Navigate the 23 Steps to Success

Want to Buy a Franchise: Learn To Navigate the 23 Steps to Success

Twenty-three? That’s the number of items in the Franchise Disclosure Document -your golden ticket that franchise companies are required to provide their prospective franchisees.

The disclosure rules enforced by the Federal Trade Commission (FTC) give you the tools you need to choose a franchise. Once you learn to navigate this comprehensive document, you should be able to make a match that will allow you to succeed in your new business.

The trick is to figure out where to focus your energy. A franchise coach can help you understand the fine print. But as you begin to peruse these documents, we recommend you focus on the following items:

Item 1 – The Franchisor

The very first page gives you the business history of the franchisor, where it is incorporated, other names under which it has operated and a general description of the business.

Item 3 – Litigation

You’re not looking for a gotcha moment for a single lawsuit, but if you see a history of many lawsuits brought by franchisees, heed the warning, stop reading, and cross this franchise off your list.

Item 7 – Initial Investment

Don’t blink at the numbers. Without enough start-up capital, your business will likely flounder. You need enough money to run your business for a few months. You will see a list of costs including an initial fee, costs to improve the leased space, estimated wages, lease payments, cost to purchase furniture and fixtures and a sign, architectural and engineering fees, initial investment in inventory, insurance, plus additional costs estimated by the franchisor.

Item 12 – Territory

Some franchises have what’s called a protected or exclusive territories. This is a promise that they will not allow another franchisee to operate within a specified distance of your location. Protected territories are not necessarily better, but you do want to understand the parameters.

Item 19 – Earnings Claim

Only about a third of all franchises make earnings claims. When making earnings claims, franchises are required to provide specific supporting materials, including exactly which outlets were included. Since earnings for individual franchises can vary substantially, we recommend you verify any numbers you see in this section with individual franchisees.

Item 20 – List of Franchise Outlets

Your most important section since this is where you will find the key that will help you open the door to a successful business future: the names, locations and phone numbers of all franchisees currently operating, as well as franchisees no longer operating. You should call as many as you can, both current and former franchisees, to learn about their businesses. Has the franchisor’s support systems been helpful? How long did it take for them to become profitable? Are they satisfied with the franchise? Would they purchase this franchise again? For the former franchisee, what went wrong?

Item 21 Financial Statements

Franchisors are required to include copies of their audited financial statements for the most recent three fiscal years to demonstrate the financial condition of the company.

Hardly ever when you enter a business, do you receive such a comprehensive roadmap to help you plot your way to success. It’s up to you to use this treasure trove of information and complete your due diligence so you can make the choice that makes your career.

Are You Cut Out for a Franchise? Take the Quiz!

 

Buying a franchise is one of the quickest, safest ways to start your own business, but a franchise is not for everyone, particularly if you’re the type of person who likes to blaze your own trail.

For starters, to be successful with a franchise — that is to maximize your potential earnings — you must be prepared to follow the franchisor’s system, the time-tested method the company has for virtually every aspect of its operations, including staffing protocols, an advertising campaign and store build-out plans.

After working with dozens of franchisees over the years, I still see new franchisees decide they can cut corners, for example, by declining to hire enough people to cover the day-to-day responsibilities of meeting the needs of customers.

The owner may decide to save money by doing some of the work himself, for example, cleaning houses or caring for seniors. As a result the owner has less time to build the business, creating a steady and growing clientele to generate earnings. While that owner may save some upfront costs, he or she loses long-term earnings potential.

So how do you know if you are a good candidate for a franchise? Answer eight easy questions:

1.    Are you prepared to thoroughly research the business?

Selecting a franchise may be your first most important step, and the process requires solid research, from reading background materials to putting shoe leather to pavement and visiting franchisees.

2.    Are you prepared to work hard?

Just because the business comes with a system doesn’t mean you won’t have a learning curve. Of course, once you have good employees in place and operations running smoothly, many franchise operations will allow you to take an afternoon for golf or to attend a child’s track meet. Many franchisees set a realistic goal to work 30 to 35 hours per week within three to five years of starting their business.

3.    Can you call for assistance when needed?

A good franchisor wants to help you through the start-up phase, so to take full advantage of what you’re paying for, you need to be willing to ask for guidance. A good franchisor will likely offer many good suggestions, possibly a long to-do list that will require time to implement.

4.    Do you have enough capital to set up the business to operate as designed?

Before you buy the franchise, your research should have told you how long it will take to operate in the black and the Franchise Disclosure Document will tell you your upfront expenses. Getting to profitability varies by location and franchisee. You will need to be work hard and pay operating expenses for some time before earnings begin.

5.    Can you accept paying the franchisor royalties and other specified fees?

These fees are the price you pay for a proven operating system, built-in research and development, a fully vetted list of suppliers, as well as an advertising campaign and ongoing support and training.

6.    Will you accept structure in your business?

If you would rather create your own approach to a unique business that reflects your particular vision for a product line or service, you don’t want a franchise.

7.    Can you accept advice from authority?

When you buy into a franchise system, you are part of a team, and the franchisor needs each of its franchisees to present a consistent image to the buying public. No reinventing the system.

8.    And, most importantly, can you trust the system to work?

If the answer is no, then don’t buy the franchise.

Ideally, you will answer yes to each of these questions. If you answered no to more than two, then you might want to consider an independent business. I also suggest you consult a franchise coach, who is in the business to help you make the best decision to ensure success.

After all, what you want most is to have a business you enjoy in which you can excel and which will also earn a tidy profit.

Ready to make your dream of becoming an entrepreneur come true?

Get your free evaluation today!

 

Contact Dan Citrenbaum to create the career you’ve always wanted. As a Franchise Coach, Dan brings years of experience helping people select and buy a franchise or existing business. You can reach Dan at dcitrenbaum@gmail.com or at (484) 278-4589.

Ready to Buy a Franchise? Not Until You’ve Interviewed Some of their Franchisees

 

Thinking about starting your own business by buying a franchise? The good news is there are a lot of people with pertinent information to share. And, as anyone of them would tell you, good preparation is key to success.

Your best resource bar none are the company’s current and, yes, former franchisees. They offer the best information on what it’s really like to run that business, and their perspective is so valuable because they’re most likely to give it to you straight. By contrast, when you call a franchisor, you may be talking to a salesperson on commission who will tell you only what will make his company look like a great deal.

So for a more accurate picture, talk to the franchisees, the more the better. Get a list of franchisees from the franchisors, which they are required by law to provide, and call to make an appointment. Each of these franchisees has stood where you are, and most will likely be happy to help. But respect their time!

What do you need to ask franchisees? A franchise coach can help you separate the wheat from the chaff, but you will want to ask about several critical aspects of their business.

Questions for Franchisees

Personal Journey

How did you choose this franchise? Did it match your particular area of expertise? What is your business background? How long have you been in the business?

Support

Are you satisfied with the level of ongoing support from the franchisor? Face it, without support, you’re a fish out of water. Support is a huge part of what your franchise fee is supposed to pay for. Plus, if you owe ongoing royalties to the franchise company, you want to make sure you’re getting something in return for your investment.

Training

Was the training you received substantial? Was it sufficient to prepare you for running this business? Was it thorough enough for someone with no industry experience?

Preparation

Has the actual business operation matched your expectations? What challenges should a new franchisee be ready to meet?

Happiness Quotient

What do you like the most about running your business? What do you like the least? Would you do it again, knowing what you know now? Why or why not?

Profitability

How long did it take you to reach break-even? Or are you on track to reach break-even? Does the franchise have the potential to earn the franchisee a six figure income? Approximately what percentage of your gross are you earning in profits?

Business Expenses

Approximately how much per year do you spend on advertising and marketing, rent/utilities, insurance, merchandise, other?

Franchisors’ Marketing

How would you rate the franchisor’s marketing programs and tools? Does this generate a significant proportion of your business?

Management

How difficult is it to find and manage employees? How are they compensated?

 

The bottom line: You want to know if the franchisee’s experience seems appealing, to see if this franchise’s process would work for you. Sometimes you may learn that what hasn’t worked out for the franchisee might actually work for you since you have a different package of experiences and skills. Or you might learn that, due to some recent staff turnover, the franchisor is no longer able to provide good support systems.

Important Pointers for Buying a Franchise

Youve got your mind set on what seems like the perfect franchise, and youre already dreaming about your future life as a successful business owner. Sound familiar? 

Before you get out your checkbook, you need to ask yourself if youre really prepared. Have you talked to:

          A franchise coach

          Franchise companies

          Franchisees

          An accountant

          A franchise attorney

Sound like a lot? Not when you consider the importance of this decision, the commitment of time and money. Because once you take the leap, you and your money are on the line. There will be no one else to pick up the slack when you feel like slinking away.

First, let me say that I think a franchise is a great way to get started in business. A good franchise has already perfected the business model, plus loads of support and training for the new business owner, including technology, staffing, sales, human resources and advertising. And this is not just a one time thing. A franchisors staff is there to help you at every step along the way.

Choosing a franchise that is right for you is the tricky part. The answers you need require research.

Choose a Coach

A franchise coach can give you a broad window into the world of franchising, which is far larger than you likely realize. The International Franchise Association estimates that there are more than 3,000 franchises across more than 75 industries. The good news is that most franchise coaches will not charge you any fee.  You can get expert help for free!

Contact Franchise Companies

As you start to narrow down your search to a sector and then select a few franchise companies that you think might be right for you, you need to learn the way these businesses work. Call the franchise company and ask them about their process and what is necessary to succeed in this business. Your goal is to figure out whether this process will work for you. 

Interview Franchisees

The franchisees once stood in your shoes, and they will want to help. The franchise company will give you a list that includes every one of their franchisees. Prepare a set of questions to ask each franchisee, and dont be shy. Just be cognizant of their time. You may need to make an appointment for your conversation. If you can do it in person, so much the better. Get a tour, and find out how their businesses are going. Are they making money?  Get specifics. How much? Does actual reality match up with what the franchise company told them. Where hasnt it worked out so well for them? Why? Would they do it again? What are their tips for success?

You should also talk to franchisees who have left the system. Youll find those names on the list from the franchise company. They may be harder to locate, but learning about how things might not go so well is extremely worth your while. Dont skip this step!

Consult an Accountant and Attorney

These specialized professionals will help you go through the Franchise Disclosure Document, which franchise companies are required to produce. Make sure the attorney specializes in franchising. The franchise agreement can be a couple hundred pages long. If the lawyer lacks experience with franchising, he or she may not know what to watch out for to ensure you are protected. You dont want to sign your name on any contracts without first consulting with a good franchise attorney and accountant.

And these are just the business questions. Stayed tuned for my next article on the personal questions that should be a part of your research.

 

© Dan Citrenbaum 2014

 

Dan Citrenbaum is a franchise coach and consultant to entrepreneurs, who helps people achieve their dreams as small business owners. He has a proven track record helping people select and buy a franchise or existing business. Contact Dan at dcitrenbaum@gmail.com or at 215 367-5349 and view his company website at www.entrepreneuroption.com

Shopping for a Franchise? — Stay Away from the Next New Craze!

Cupcakes are all the rage these days in franchising, and while they make a pretty window, their long-term appeal may be fleeting. Frozen yogurt is also making a strong comeback after almost disappearing some years ago. But it doesn’t take much to saturate the market, and you know it’s a fad when it fizzles out fast.

What’s hot and what’s not may be a typical headline on a fashion spread, but you probably want to stay away from fads when it comes to franchises. Sort of like the flavor of the month, when folks get tired of it, they stop buying.

A better focus is to pinpoint what people need. After all, people are not likely to buy specialty cupcakes on a regular basis or continue buying frozen yogurt when the weather turns cold, which are just a couple of reasons why these businesses tend to come and go as often as the weather changes.

Some of the best opportunities are with franchises in well-established markets where the field may already be crowded. But there’s a lot to be said for the tried and true. After all, savvy buyers choose the economic sectors with consistent growth.

When starting a new business, your goal is to capitalize on long-term economic trends — as opposed to the flashy fad. Case in point: the International Franchise Association projects business and commercial and residential services will be the fastest growing sector of the franchise business in 2014.

The specific areas we like include health care, temporary staffing and other service businesses.

Solid Trends for Franchises

Health Care

The health care industry has experienced good growth in recent years, and, as the baby boomers start to retire, the prospects for the future may even be better. You can find franchises that specialize in modifying homes for seniors, as well as supplying home health care aides.

Temporary Staffing

As many companies cut jobs as a result of the Great Recession and a slow growing economy, they now rely more on temporary or contract workers. So the demand for temporary staffing services is on the rise with no clear end in sight.

Service Businesses

A panoply of service businesses are thriving, particularly ones that tend to be recession resistant, not easily outsourced overseas or conducted over the internet. Examples include firms that conduct workplace drug and alcohol testing, mandated by the government for some industries, and companies specializing in the restoration of water damaged homes, since disasters, like floods or broken pipes, regularly occur without regard to our economic cycle.

While you don’t want to be seduced by the latest fad, you do want to anticipate future trends in the American economy. A strong business idea fulfills a deep-seated market need, which, as we know, some people may have not yet realized. Who would ever have guessed 20 years ago that Americans would now be so addicted to their espresso drinks!

Dan Citrenbaum is a franchise coach and consultant to entrepreneurs, who helps people achieve their dreams as small business owners. He has a proven track record helping people select and buy a franchise or existing business. Contact Dan at dcitrenbaum@gmail.com or at (484) 278-4589 and view his company website at www.entrepreneuroption.com.

© Dan Citrenbaum 2019