December 19, 2014

Types of Franchises And How To Find Them

How Do You Find And Research Franchises?

The internet has made information about specific franchises readily available. There’s no shortage of franchise opportunity websites in which one can see what’s available in the franchise world.

Here’s a few franchise websites that are worth a look:

Using franchise websites like the ones mentioned, are a great way to explore opportunities in franchise ownership. But, there are a couple of other ways, too.

Searching for franchise business press releases can be quite fruitful. New franchise opportunities are always being announced, as well as useful and informative announcements from franchises that are expanding, or are offering new products and services.

Here are a few places to find current franchise business press releases:

If you’d like a more personalized approach to finding appropriate franchises, using a franchise broker may be something for you to look into.

Franchise brokers try to match folks with franchises in their portfolio, and they get paid a commission when they make a successful match. It’s important to remember that brokers only represent a relatively small number of franchises (typically 100-200), out of the 3,000+ different choices available. Brokers tend to shy away from high-investment opportunities like the ones you’d find in the multi-unit food franchise sector.

If you’re going to use a franchise broker, it’s important to remember that they’re only going to present franchises that they work with.

When it comes to researching franchises, The Franchise Disclosure Document (FDD) is where the majority of the data about the franchise will be found. During the franchise discovery process, the franchisor will eventually send the FDD (via mail, or electronically). It’s a clearinghouse of important information about the franchise that you’re interested in.

Here are the 23 items that are included in the FDD:

  • The franchisor, its predecessors, and its affiliates
  • Business experience
  • Litigation
  • Bankruptcy
  • Initial Franchise Fee
  • Other fees
  • Initial investment
  • Restrictions on sources of products and services
  • Franchisee’s obligations
  • Financing
  • Franchisor’s obligations
  • Territory
  • Trademarks
  • Patents, copyrights and proprietary information
  • Obligation to participate in the actual operation of the franchise business
  • Restrictions on what the franchisee may sell
  • Renewal, termination, transfer and dispute resolution
  • Public figures
  • Earnings claims
  • List of outlets
  • Financial statements
  • Contracts
  • Receipt

It’s important to go through this document step by step. A lot of the items are filled with legal jargon, so it’s wise to engage an attorney that’s familiar with franchising, who will help you decipher it.

For research purposes, the most meaningful areas to concentrate on are:

Litigation:  If there are a lot of lawsuits relative to the number of franchises in the system, buyer beware. Example; 20 lawsuits against the franchisor, in a system that has 200-300 franchisees is a little excessive. All types of businesses get sued. If a franchisor gets sued a lot, find out why. Sitting down with as franchise attorney will prove to be really helpful, when it comes to finding out about franchise lawsuits. It will open up the door for questions that you may have about being sued, yourself.

Franchisee and franchisor’s obligations:  It’s good to know ahead of time what obligations both parties have in a franchise relationship. For example, franchisees may be obliged to submit monthly sales reports, achieve minimum sales revenue amounts, submit all proper state and local licensure documents, and to only use pre-approved marketing materials.

The franchisor may be obliged to make available suitable training programs, continuing business advisory assistance, a copy of the Confidential Operating Manual, and make available all marketing and advertising materials as needed.

Earnings Claims:  Approximately 20% of franchisors actually includes earnings claims. (Earnings claims are now called Financial Performance Representations.) Earnings claims can be disclosed in a few different ways.

99 percent of all systems making earnings claims provide sales/revenue data, only 49 percent give some type of expense data and only a few provide what is essentially a complete franchise unit income (From The Profile of Franchising, Series VI, January 2007.)

If the franchise concept that you’re interested in happens to be in the 20% of franchisors that do disclose some type of earnings claims, it’s a nice head start on the research phase of investing in a franchise. But to really get the answers, look no further than “the list of outlets” in the FDD.

List of outlets:  This really important list contains the name of all the franchisees currently in business, their business addresses and their phone numbers. This is where the rubber really hits the road. At this point in the research process, it’s time to shut out all that non-essential noise that’s going on in your head. It doesn’t matter what you feel or think about this opportunity, right now.

It doesn’t matter what the franchise salesperson has shared. What matters now is what the franchisees that have invested their own money in the system have to say.

Here are a few questions to ask:

  • If you had to make this decision again, would this be the franchise business that you’d choose? Why?
  • Is the franchisor providing the level of support that you expected?
  • Is the stated “total investment” amount correct?
  • How do you rate the marketing and advertising?
  • How is their technology?
  • Is there more or less competition than you expected?
  • What’s your favorite part of the business?
  • What’s your least favorite part of the business?
  • Do you plan on growing your business by adding employees, space, or more locations?
  • Do you know of any really unhappy franchisees? (Why are they unhappy?)

Those are just a few of the many questions that you’ll need to ask, when you’re reaching out to current franchise owners.  (More franchise selection information and franchise research techniques and suggestions can be found at the Franchise Online University.)

Conclusion

Investing in a franchise can truly be a life-altering event. There is obviously a level of risk involved, but that risk can be mitigated by getting all the facts needed to make an informed decision. We hope that the Small Business Trends Franchise Business Guide has provided more than a few. Good luck!

Additional Resources

  • SBA – This comprehensive US Government website provides just about everything one needs to start a business, including small business loan information.
  • Small Business Trends – Numerous franchise business articles can be found in the franchise category, including the top franchise trends, which come out at the end of every year. You’ll also find timely small business articles, advice, and news which affect the small business community.
  • Score.org – This website features resources and information for the would-be small business/franchise owner. Score counselors are retired small business owners and executives who provide free and confidential small business advice.
10 Comments ▼

Joel Libava - Franchise Expert


Joel Libava Joel Libava is the Franchise Expert for Small Business Trends. Joel, The Franchise King®, equips today’s prospective franchise owners with time-tested, proven techniques designed to increase odds of success. He does this through one-on-one coaching, and gobs of useful content that can be found on places like Small Business Trends, SBA.Gov, and his award-winning franchise blog, The Franchise King Blog . He’s been featured in Entrepreneur® magazine, and is frequently called upon by national media outlets and publications for his no-spin insights into the world of franchising.

10 Reactions

  1. All I can say, Joel, is there must a lot of money in chicken wings! A Buffalo Wild Wings franchise for $1 to $3 Million! If you bought one of those franchises you’d have to invest in some of those signs with the cow that says “eat more chicken”. :)

  2. Yes…they are big money.

    Big places, lots of fixtures, and the rent is ginormous.

    Lots of activity on sporting event nights though, and their gross receipts probably reflect as much.

    It’s still an awful lot of money. And some franchisees own more than one unit!

    One more thing; I love wings….

    The Franchise King®

  3. The most popular franchise industries right now include healthier fast food chains, vending franchises like DVDNow, cleaning franchises and senior care franchises. People are starting them up left and right. We also have a comprehensive list of hot franchises by industry, region and initial investment. Check us out!

  4. It is very important when selecting a franchise, to choose a business model that is right for you and fits with your personality and ambitions. You need to be to be passionate about the products and services of your chosen franchise. Another important consideration is how well are you going to get on with the franchisor and its management team.

    • Thanks for commenting, Jason.

      Actually, I’m going to disagree with you here.

      One doesn’t need to be passionate about the products or services that they are selling…especially at the beginning.

      I don’t know too many people that are passionate about cleaning huge office buildings, for instance.

      But, these people-these franchisees, ARE passionate about some or all of the outcomes that business owners have.

      Like being the boss…

      The Franchise King®

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