This is a guest blog post by David Miller, CEO of Brightway Insurance.
The franchise industry will continue to outpace growth in other business sectors in 2013, according to a report by IHS Global for the International Franchise Association Educational Foundation.
Just like buying your first home or deciding how to invest, purchasing a franchise is a big decision. There are many factors one should consider beyond the perceived popularity of a franchise or your overwhelming personal fondness for its product or service. In order to ensure you get what you’re looking for, particularly a successful growth business, take these concrete steps before coming to a decision:
Research Different Franchise Opportunities
Finding the best fit for you is important. Don’t just pursue your first idea. Research different franchise opportunities to determine your niche, including a variety of business sectors. Consider how well your interests and expertise fit with each potential opportunity.
Research the past and potential growth of each industry sector.
- How has the sector done in good times and poor economic periods?
- Is it a product or service that consumers need, or is it a “nice to have” item that many individuals could eliminate or find a cheaper alternative to during tough times?
- Do you want a franchise that is “turn-key” over the longer term?
This means you’ll work very hard as a hands-on owner in the first five years or so and then transition the business to someone else to run the day-to-day operations. If so, you’ll have to determine through research if this is a feasible scenario for the type of business you plan to select.
Look at successful and unsuccessful franchise and non-franchise businesses in each sector and determine what caused success or failure in each case. There could be multiple factors including location, timing, marketing, customer service, pricing, supplier costs, payroll costs, taxes, and more.
Consider colleagues, friends, and business support organizations (such as SCORE) to gather information. Franchisors and existing franchisees are also important sources of information, but should not be your only sources.
Interview Those Who Know
It’s important to speak to as many existing franchisees as possible, and you will likely receive a range of feedback. Discount extreme opinions unless they are consistent across many discussions.
Key questions include:
- Did the franchisor deliver what was promised?
- What is a good year of earnings? A bad year? A typical year?
- How long did it take to break even?
- How is your long-term financial outlook?
- Would you recommend this franchise to a friend?
- If you had to do it all over again, would you still do it?
Seeing is Believing
Visit franchise locations as a customer, without disclosing your potential interest in becoming a franchisee. Consider the following:
- Do you think you can deliver the customer experience?
- Do you want to deliver the customer experience?
- What would you change?
- Ask other customers about their experiences and if they are happy purchasing and associating with the brand.
Read the Details
Review the Franchise Disclosure Document and consider the following:
- Is the language in the contract ambiguous and vague or is it clear and easy to understand?
- How do the audited financial statements of the franchisor look?
- Is the core business profitable?
- How much of the bottom line is made up of franchise fees?
- If the franchisor never sold a new franchise again, would it still be successful or would it go out of business?
Go to the Source
When you visit the franchisor’s headquarters, observe the environment and consider the following:
- Is there a positive energy/atmosphere?
- Do the corporate employees seem happy and do they act professionally?
- Is the space well maintained or outdated?
- Does the headquarters seem capable of supporting a large number franchisees?
Carefully consider all the information you have gathered and then, most importantly, make an honest assessment of your commitment level to being a franchise owner with ultimate responsibility for success or failure. It takes a significant level of focus and determination to successfully manage your own business.
David Miller is CEO of Brightway Insurance, with more than 115 franchise stores in multiple U.S. states. Brightway sales grew more than 50 percent from 2011 to 2012, and it plans to open 50 new stores in 2013.