With thousands of franchise opportunities available in numerous different industries, it can be overwhelming for entrepreneurs who are interested in buying a franchise to determine which one is right for them. As with any other venture into business ownership, purchasing a franchise is a major investment, so thorough research and due diligence are crucial early in the process. The reward for spending the time to properly investigate each franchise is the ability to participate in a fulfilling, successful business opportunity with support from a parent company.
If you are thinking about buying a franchise, here are some tips for researching each opportunity in order to ensure that you find one that is enjoyable and profitable:
- Conduct an honest personal assessment. Have a clear understanding of your own goals, strengths, tolerance for risk, income expectations, and the ideal lifestyle that you would like to have as a franchise owner. Keeping in mind these considerations, as well as your skills and experience, try to determine how well each franchise you investigate aligns with them. As you search for opportunities, remember that just because you like a particular brand as a consumer, it may not necessarily be the right fit for you as a business owner.
- Formulate a realistic budget. No matter how passionate you are about a business, profitability is still the most important factor. Before you begin in-depth research on particular franchise options, it is crucial to have a clear idea of how much you can afford to spend. As you consider different brands, obtain reliable estimates of start-up costs, profit margins, and how long it will take for the franchise to begin yielding a positive return on investment—and a reasonable salary for you.
- Consider the current and projected success of each industry. When buying a franchise, many people dream of having a stake in the latest trend. However, even trends that show no signs of slowing down could become nearly obsolete within a few years. Therefore, it is important to examine not just individual companies, but also the industries to which they belong. Look beyond products or services that are currently popular and consider broader trends that will inevitably impact society, such as shifting demographics or evolving technology.
- Review the paperwork. If a brand has piqued your interest, request a copy of the Franchise Disclosure Document (FDD). Franchisors are required by law to provide prospects with a copy of this document, which will give you a better idea of the brand’s financial performance, costs that franchisees can expect to incur, training and support provided by the parent company, and more.
- Interview existing franchisees. Arrange visits to franchise locations of the brands you are considering and speak with the current owners. Ask various questions and compare their responses to the information you have received from the parent company. For example, questions that you may want to ask franchisees include:
- What types of training and support do you receive from the parent company? Have you found it to be sufficient?
- What problems have you encountered, and how has the parent company helped to resolve them?
- How much competition do you face?
- What is your opinion of the quality of products or services that the brand sells?
- What are your responsibilities (versus those of the parent company) for marketing and promoting the business?
As you research different franchise opportunities, one of the most valuable steps you can take is to work with a franchise consultant. A franchise consultant can help you identify which opportunities are best suited to your individual needs, skills, and desires, while introducing you to brands that you may not have even known existed. At Franchise Logic, we will guide you through each step in the process of researching and buying a franchise so that you find a business venture that will deliver long-term fulfillment and profitability. Contact us today to learn more!
(Sources: https://www.entrepreneur.com/article/199090, http://www.franchise.org/how-do-you-investigate-a-franchise).