For would-be (or current) entrepreneurs, becoming a franchisee, especially for a successful outfit, seems like a shorter path to profitability. That said, the devil’s in the details — and there’s more to a franchise opportunity than upfront costs and prior successes.
We asked members of the Young Entrepreneur Council (YEC), an invitation-only organization comprised of the country’s most promising young entrepreneurs, the following question to find out what factors to consider when evaluating a potential franchising opportunity:
“What’s one often overlooked thing you should consider when evaluating a franchising opportunity?”
Here’s what YEC community members had to say:
1. Check for Proven Systems
“When you buy a franchise, you’re buying a proven business model. But if that opportunity doesn’t come with systems that work, then you’ll be flying blind. There should be systems for everything from payroll and marketing to client services and upsells. You also want to find out if training is included or if you’ll be left to figure out the system on your own.” ~ Kelly Azevedo, She’s Got Systems
2. Ask How They Treat Their First Franchisees
“It is important to track how the original founders of the company have treated their first franchisees to see if it is a right fit for you. Go and make the personal visit to the first group of franchisees if the company is not willing to let you meet them this is definitely a red flag. Remember, once you sign an agreement it is really hard and expensive to buy yourself out of one. ” ~ Derek Capo, Next Step China
3. Examine Earnings Potential
“It can be tricky to evaluate the profitability of a franchise, because you can’t rely on profitability from other franchise locations – that may be affected by location and a variety of other factors. Get a comprehensive list of the financials from other franchises, investigate how the successful ones became profitable, and find out whether other franchises have recently failed.” ~ Andrew Schrage, Money Crashers Personal Finance
4. Consider Coaching to be Critical
“One often overlooked, though extremely important, factor to consider when evaluating a franchising opportunity is whether the franchisor offers a well-thought-out, structured and proven coaching program. Great franchisors understand that their success hinges on each of their franchisee’s abilities to be entrepreneurial & savvy. Great franchises will invest in their franchisees’ development.” ~ SeanKelly, HUMAN (Helping Unite Mankind And Nutrition)
5. Make Sure they Have Already Succeeded
“Some franchises need specific talents or connections to be successful. Before you decide to take on a franchising opportunity, research who has already done well with that franchise. See if there are any common factors — and if you have the necessary characteristics, as well. ” ~ Thursday Bram, Hyper Modern Consulting
6. Acquire Territory Exclusivity
“My primary concern when I consider franchising (after the strength of the brand) is whether I can get exclusive territory. If that’s not possible for whatever reason, it makes it much tougher to build and defend a profitable niche.” ~ Erik Severinghaus, SimpleRelevance
7. Know the True Costs of Being a Franchisee
“I review many franchise agreements. There are often hidden fees in addition to the royalty payments, such as required marketing fees or training. Be sure you know the true cost of being a franchisee to make sure the franchise opportunity is the best one for you and your family.” ~ Doug Bend, Bend Law Group, PC
8. Look for Knowledge-Sharing Among Franchisees
“Any good franchise will align the interests of the franchise and the franchisees. One way to enhance your odds of success is to franchise from an organization that connects all of its franchisees. Because you will have territorial protection, you should feel free sharing with (and asking questions of) other peer franchisees. Their experiences will help put you on the right track.” ~ Aaron Schwartz, Modify Watches
9. Seek Advice From Existing Franchisees
“What do the company’s fellow franchisees think? It’s easy to get swept away in the great information the company espouses, but what’s it really like? I advise every potential franchisor to sit down with someone who has converted and ask him the tough questions. Existing franchisors should be willing to mentor newbies. Their enthusiasm should be contagious!” ~ Kuba Jewgieniew, Realty ONE Group
10. Analyze Market Opportunity
“It’s easy to get lost in the FDD numbers and lose sight of the big picture. The dollars and cents are important, but they’re also irrelevant if you find out a few months into owning the franchise that your personality doesn’t fit with the culture. Attend the “Discovery Day,” get a feel for the company’s values and vision, and make sure you mesh well with the people behind the brand.” ~ Nick Friedman, College Hunks Hauling Junk and College Hunks Moving
11. Get Comfortable With Company Operations
“When evaluating a franchising opportunity, you should determine if you are comfortable with the extent to which you can modify operations. Quite often, franchises have strict rules on how to operate the business — often not allowing innovative franchisees to explore new marketing strategies or product positioning. Make sure you are comfortable with what you won’t be allowed to change.” ~ Chuck Cohn, Varsity Tutors
I really like that you pointed out the fact that knowledge-sharing among franchisees should be looked at during the research phase.
It says a lot about the culture inside of the franchise organization.
The Franchise King®
The above post is quite relevant. However, there is a 12th critical element that is missing – how deeply vested is the corporate in their suppliers? This is one question every one overlooks. If the corporate owners have stakes in their suppliers, you are guaranteed higher prices for the same goods that you can source cheaply – and of course, corporate will not allow you to source externally.
Franchising is a very successful way of getting into and growing a business, but dozens of issues exist in every franchise relationship. Surprisingly, no commentator focused on reading and understanding what is in the Franchise Disclosure Document (FDD)which franchisors are required to provide to prospective franchisees before they sign a franchise agreement.
To understand the FDD and many franchising issues, I recommend the International Franchise Association’s free on-line course, “Franchising Basics.” http://www.ifa-university.com/home/
Buying a franchise is not an easy task you have to be utmost careful it is not every time true that if the brand is successful in areas it will be successful in your area also. First you need to do is a market search and completely understand that your market area is suitable for the product or not. Another point is chose the franchisor that is providing you a training as that will help you to understand the business more carefully and be prepared for the roadblocks because the franchisor can only show you the road or path on that path you walk on your own.
Thanks for that comment, Rachel
Market research is super-important.
The Franchise King®
Great post. I loved it. To run a successful franchise model a background support from the main branch is very important. I have always seen in all restaurants having a successful franchisees, it’s only because they train new staff on how to cook and what quality to maintain. One more thing, there should be no hidden terms or conditions after starting a franchise. Everything should be cleared at the first point of agreement.
I was also really impressed about the above comments especially the one which is talking about the market research. It is important to do a market research before going for a franchising agreement because the franchiser may sometimes give you mere explanations pertaining to the business concerned, and there are possibilities that you may feel that information is enough whereas it is not. So it is important to carefully study the market and see if there are any fortunes in the future when you buy that business entity.
Ravi Jintendra Sanghvi
There are lot of factors to consider before taking a risk of get into a franchise model. I think you must check about the popularity of the restaurant before signing in and yeah, how they help us to grow our business on initial business is also important.