The following excerpt is from franchise expert Mark Siebert’s book The Franchisee Handbook. Buy it now.
Franchisors can be found in virtually every field of business. Of course, there are franchise restaurants and franchise retail stores, but there are also franchise sales forces and franchise service businesses. There are even franchise medical services.
So how do you come up with your short list of a few franchises worthy of closer investigation?
Developing your “shortlist”
Start by putting together your franchise universe by assembling a longer list of all likely contenders. The logical place to start is the internet.
Then comes the slash-and-burn phase of your search, in which you develop your short list of possible franchises. Essentially, you want to use a successive series of finer and finer filters to narrow your list of companies under consideration to a handful — two dozen at most.
So, let’s start slashing.
Related: Considering franchise ownership? Get started now and take this quiz to find your that match your lifestyle, interests and budget.
Look beyond the chicken
Your first round of slashing must include an honest discussion with yourself about exactly what you’re buying. For many franchisees, that “what” is not so much a thing as a feeling. If you ask an experienced franchise salesperson what sells franchises, they will tell you it’s emotion — particularly for first-time business owners.
But when you buy a franchise, you are not buying the chicken, the fancy new vending machine, the bagel oven or the virtual reality game. You are investing in a business system. You are investing in the support of the franchisor’s management team.
You are investing in the franchisor’s track record and history of success. You are investing in their marketing system. You are investing in the future of their market. And you are investing in yourself.
If you are selling the cure for the common cold, but you don’t have a good business system, you will fail. The best hamburger does not always win the race. The best business does.
You want to love what you are doing, but loving what you are doing is not the same as loving the product. Your focus needs to be on what you are buying (the business), and not on what your customer is buying (the product or service).
Once you have determined that you want to invest in a business system and not a romantic idea of business ownership, you need to start researching potential franchises.
Your first (and hopefully best) source of information on a franchise company will be the franchise company itself. If you are interested in a particular franchise, be sure to reach out to it directly.
Another resource that can help guide you through the process of buying a franchise is a franchise broker (also called a lead-referral network, or LRN). Brokers, who often call themselves “franchise consultants,” can be a valuable tool in helping you assess your options. But before you decide to work with a broker, you should understand how their business model works.
Otherwise, look to the International Franchise Association (IFA), which provides information on industry suppliers in areas such as finance, insurance, veterans’ programs, minority programs, and the franchise buying process. Likewise, the U.S. SBA is a tremendous resource for aspiring business owners, too.
Once you have narrowed the field to perhaps a dozen franchisors, one crucial screen you need to employ before making your shortlist is to understand the company’s reputation in the marketplace.
Avoid simply searching for the companies by name. Search for the company name along with risk-related search terms like “default rate,” “franchise failure,” or “litigation.” While much of this information will be included in the franchisor’s franchise disclosure document (FDD), these searches might lead you to details that would otherwise go unnoticed.
Visit the competitors, even if you’re not buying
Another thing you should be doing is visiting competing businesses — both franchises and independents — in your community. You may even want to talk to competing franchisors, even if you are not interested in them, so you can hear how they position themselves vs. your target franchise.
Remember: A franchisor could have the greatest concept in the world, but if the market is already saturated, you need to take that into account in your risk equation.
While you are at it, you may also want to visit locations for your target franchisor in some more distant markets. See whether they are all run in the same manner. Do they offer the same products and services, and at similar prices? Are their locations laid out the same? Are they all clean and well-run?
If your first reaction is, “I can do a better job than they do,” that is not a good sign. That means the franchisor may not be doing a good job of quality control — and those substandard franchisees will ultimately be representing you, as they will be flying the same flag and telling their customers what they can expect when they visit your location.
As a last step, you will probably want to contact a market analytics firm. These firms will, for a small fee, provide you with a market analysis of the demographics of the area and the local competition. And some of these firms will indicate whether your market segment, at least in general terms, is overbuilt or underbuilt.
The better you know your market, your competitors and your target franchisor’s operations, the better equipped you will be to make an informed investment decision.
The bottom line: You can’t examine the universe
If you have been conscientiously screening your prospective franchisor candidates and doing your research, you should have narrowed your field of franchise candidates to a select few by now.
But if you still have dozens of prospective franchises that meet your criteria, you need to narrow the list further. To avoid “analysis paralysis,” you need to get your list down to a handful of opportunities. So you will need to apply additional screens to reduce your list to a manageable number.
The screens you choose to employ are up to you, but they should focus on what is important to you in your decision-making process. For example, you could look at:
Get started with The Franchisee Handbook
In The Franchisee Handbook, franchise expert Mark Siebert walks you through the process of vetting and buying a franchise, helps you ask the right questions of franchisors and yourself, and gives you the resources you need to decide if franchising is right for you. Siebert shows you how to do your homework before making what could be the greatest financial decision of your life. You will learn how to:
Why dream about owning a franchise when you can take concrete steps to make it happen today? With The Franchisee Handbook as your guide, you have the power in your hands to start your own franchise journey right now.