Evaluating the wide variety of franchising opportunities can be a daunting task. Options are available in many business categories—from fitness concepts to food outlets, equipment repair to elder care, employment services to home services. With over 4,000 franchise options in the United States today, there is a concept to fit most any desire.
“It gets overwhelming and people end up giving up on thinking about investing in a franchise,” said Steve Miller, a franchise consultant. “People often ask me, ‘What’s the best franchise out there?’ and I tell them, ‘It all depends.’ There’s not a simple answer to that question because it depends upon a multitude of factors which must be taken into consideration.”
WHAT’S YOUR LIFESTYLE?
Identifying what kind of franchise would suit the individual starts with self evaluation. According to Miller, one of the first steps is deciding the hours one wants to work in a business. Someone who does not want to manage or be “on call” weekends, evenings or holidays, for example, should avoid food service franchises. Home services businesses are “great lifestyle businesses,” according to Miller, because working hours are typically 9 a.m. to 5 p.m. Monday through Friday. “Oftentimes these businesses are home based, therefore the start-up costs are a fraction of having a retail location,” he said.
Other important considerations include whether the franchise is business to business or business to consumer, your personal interests, family support, and what you can afford to invest.
“You might say ‘I can’t work on things at my own house, how am I going to fix someone else’s?’” Miller said. “That has little to do with the owner of a franchise of this type. The role of the franchisee is to work ‘on’ the business and not ‘in’ it. You’re not looking to buy yourself a job, you’re looking to manage and scale a business.”
WHAT’S THE COST?
Initial investment cost is an important consideration when selecting a franchise, as is your willingness or ability to borrow money to finance the purchase and start-up expenses. “The days when people were literally mortgaging their homes to buy a business, whether a franchise or not, are gone,” said author Mitchell York, who wrote “Franchise: Freedom or Fantasy?” “These days you either have to have the capital to buy into a franchise or you have to find some other source of capital. There are franchises that cost a million dollars and franchises that cost $10,000. You need to understand what universe you can play in.”
FRANCHISE DISCLOSURE DOCUMENT
Purchasing a franchise means acquiring a proven business model to follow and execute, but buyers must know what to ask in order to select a winning formula.
Prospective owners need to know what they’re buying before signing a franchise agreement, and the Franchise Disclosure Document (FDD) provides this transparency.
The Federal Trade Commission requires franchisors to provide the FDD to prospective buyers at least 10 business days before a contract is signed or money exchanges hands. The FDD contains valuable information about the franchisor ranging from the initial investment to the franchisor’s obligations to franchisees and the company’s financial statements. In total, 23 disclosure items are covered.
LEARN THE TERRITORY
Crafting a proper territory is vital to the potential for success of the franchise. “When Quiznos was the really hot franchise, everyone was buying into Quiznos,” York said. “They had territory definitions where you could have an exclusive in your town, but you wouldn’t have the exclusive in the next town. You might have thought it’s not going to be a problem and then lo and behold another store opens up a few blocks away.”
DOES EVERYBODY KNOW THEIR NAME?
With hundreds of new franchises debuting each year, another factor is determining whether a concept has staying power. Investing in a new franchise concept, which oftentimes has lower investment costs, might be a good idea, but it has risk. “If you buy a franchise that is brand new and no one has ever heard of, you take on all the risks of that franchisor potentially not being very good at what they do in terms of operations,” York said. “They may have a good idea, but they haven’t established any brand equity. They haven’t tested their operating procedures for any length of time.”
SEE FOR YOURSELF
Because franchisors cannot make earning claims outside the information disclosed in the FDD, York said, they might be limited in their ability to give direct feedback on profit and loss projections. For that reason, York said, anyone looking to buy a franchise should “get a reality check” and spend time studying existing franchises. “If you are going to buy a cupcake store, go into the cupcake store and count how many cupcakes get sold per hour,” York said. “You can’t just go in on Saturday. You have to go in on a Tuesday, and you may have to camp out there for a while and take a lot of notes.” Before buying a franchise, a potential owner should talk to current and former franchisees to get a sense of whether the organization delivers on its commitments, if they conduct themselves in a professional manner and determine if operating the business is worth the investment of time and money.
RETAIN A COACH
Vetrepreneur offers a complimentary service to veterans which takes the guesswork out of evaluating franchises. A Vetrepreneur Franchise Coach will walk you through a comprehensive process, including selecting the right franchise for your situation, understanding funding options,
and learning about benefits available exclusively to veterans. Visit vetrepreneur.com/franchise-coaching to join other veterans who found their franchise with the help of our coaches.