Proven Business Model
A huge positive of buying a franchise is the momentum and track record of the franchisor’s business model. Of course, it’s possible that the momentum is reversing or the track record is terrible, but this is all information that you can easily find and figure out. This is another great thing about existing franchises—there is a ton of information out there that is available to the public.
You can find information in a whole bunch of ways:
- For one, most states require franchisors to file information with them. Some states, like California, require a franchisor to file a good amount of information. Before you invest in a franchise you will want to access this information.
- You can ask existing franchisors—yes, just walk up to a franchise, ask for the owner, say you’re considering opening a franchise, and ask for their input. But beware: asking one or two franchisors is not going to be scientific. For example, an exceptionally bad or excellent location can totally offset a weak or strong franchise program. So get out and talk with a bunch of owners. I’d suggest talking with at least 10 if not 20!
- You can ask competitors. Yes, competitors love to talk about the competition, and often they’ll have more to say than the business owners themselves.
Experience of the Franchisor
A strong argument for buying a franchise is the experience of the franchisor. Franchises such as Burger King, MacDonald’s, Midas Mufflers, and others have been in business for many years, and they have learned what works and what doesn’t. You can take advantage of their consumer recognition and proven business formulas.
Any franchisor that has been successful for many years will, in all likelihood, provide excellent training with ample resources at the home office to get you started in your own franchise.
Buying and Advertising
One of the fastest ways to drain cash is to spend heavily on advertising. As a franchisee, you can take advantage of the public awareness of the franchisor’s name and its national advertising budget. The franchisor will have volume purchasing power for supplies that may or may not be passed on to the franchisee.
Research and Development
The R&D budget for a franchisor will often be substantial, providing the franchisee with new products and services as well as advice on how to introduce the new product or service.
When you buy a franchise, you are, in effect, buying into a family of other franchisees. You are all working toward the same goal and have all adopted a similar mission on behalf of the franchisor. Some of the best ideas for the franchisor come from the “family”—you become part of a network of franchisees that regularly talk to the home office as well as other franchisees.
All franchisees are required to pay an up-front fee to the franchisor in order to use the franchisor’s name and open shop. These fees can run into six figures. The franchisor will usually require ongoing fees as well.
Individuals who have problems taking direction will find franchising a difficult business route to take. Franchisors achieve success through the development of conformity among all the franchisees—from management style right down to ordering supplies. If adhering to rules or functioning in a structured environment bothers you, you should look into some other form of business structure.
It is easy to fall into the trap of feeling that, just by buying into a popular franchise, you will be an instant success. Franchising is just like any other business—you must work hard and make sacrifices to achieve a measure of success. And yes, some franchises do fail.
If you live in a metropolitan area, the chances are good that you will see several similar franchises within a 10-mile radius. The franchisor will, one way or another, realize profits through this situation. But for you, the individual franchisee, this situation can be a competitive nightmare that might ultimately force you to close your doors.
International versus Domestic
If the franchisor has headquarters in a foreign country, problems may arise if you require assistance or need to speak to a company representative in person. Make sure the franchisor has an office in your country or, at least, sends a representative to your country on a regular basis.