Buying the Right Franchise: A Guide For Business Buyers
Owning a franchise can be a great investment that rivals buying or staring an independent business in several ways. However, with the amount of franchises to choose from being overwhelming, it can be easy to make a poor decision and miss out on better opportunities. This guide will help you navigate the limitless options and find a business that will give a nice return on your money and time.
Step 1: List Out Your Desired Franchise
The only way to start the process of finding a suitable franchise for yourself is by creating a list of desired traits you want your franchise to have. When making this list it is important to keep in mind that it is open to review and the first time you write it down is not the complete, nor final version. The first attribute to consider is whether your business will be business to business, or business to consumer. Selling to businesses and selling to customers are very different, prior job experience in either one should be reflected on to make a non-regrettable choice. Next ask yourself what sized industry you want your franchise to be from, a larger industry will have proven demand and a small industry will be more dynamic with faster growth. Choosing the right brand is also important, an established brand comes with large awareness, but a newer brand might have more potential. After that, deciding on the level of support you want from your franchisor is crucial as it affects your operations. Along with filtering down your choices through your preferences, you will encounter that your choice is also largely impacted by how much you can invest and what franchises are targeting your preferred location to expand into. Along with figuring out what type of franchise you want, you should also try to begin thinking about what kind of return you hope to get on your investment.
Step 2: Online and In-Person Research
After deciding on a short list of franchises that meet your preferences, it is time to start research each one online and in-person. Franchises provide a lot of information on their websites and it is essential to visit a franchise’s website before seriously considering investing. Along with the general information provided on franchise websites, the internet hosts franchisees’ reviews of franchises which will give you an honest look into the reality of operating a franchise from your list. In-person research you can do is visit a location a franchise you are interested in to understand the customer experience and if you can see yourself as part of the franchise. While visiting the franchise you should also see if you can set up a meeting with the owner/manager to gain more information. You can request a franchise to give you their franchise disclosure document (FDD), which contains information about the franchisor and their performance; a registered FDD also shows that a franchise is legitimate. No in-person research is complete, however, without attending franchise shows to meet with representatives of your desired franchises. Attending a franchise show isn’t inherently effective, going with a list of well though-out questions and establishing contacts for each prospective franchise is the best in-person contact you can do.
Step 3: Compare Numbers
A lot of the research done in step 2 is qualitative, the financials and other quantifiable information you can get from FDDs and other resources need to be compared across franchises. Financials will give you an accurate expectation of the different costs, operation requirements, revenue sources, and most importantly profit for your, hopefully cut down to six, list of franchises. Operation statistics are important to look over as well as they will give you an a better look into the processes and the relationship between individual stores and the franchisor. Many FDDs give limited or summarized quantifiable information so there might be some be trouble finding out the real financial performance of an individual store for a franchise, you might have to search the internet for databases that contain missing numbers.
Step 4: Buying a Franchise
After completing the needed time and effort to decide on the right franchise to invest in, the next step is to get the investment process started. When buying a franchise you can either buy a franchise from a seller employed by the franchisor, or you can buy from a franchise broker. Hiring a due diligence expert prior to committing to the purchase of a franchise will help you understand what the venture will entail and will limit anxiety over possible regret post-purchase. A franchise seller will help sell you either a new franchise opportunity to start up or an existing franchise near you. Starting a new opportunity can be hard and time consuming, but can lead to more profit than an established location if done well. A franchise broker sells only established franchise locations and unlike franchise sellers, can match you to different franchises’ locations, which might be beneficial if you haven’t narrowed your choice down far enough. Completing the purchase of a franchise can be a complicated procedure with financing and terms, however many franchisors deal in good faith and help prospective franchisees become location owners as much as they can. It is important to note that an escrow agent will be a part of the transaction process as they are with all business sales. If you buy an established franchise you should expect a few months of adjustment as the new owner, and if you buy into a new opportunity it’ll take two to six months to get it up and running.