Choosing the Right Franchise

Matching your personality/lifestyle etc – Conducting research/due diligence

Franchising is a popular method of doing business and your chances for success are greater than those of independent business owners. To ensure survival you should follow some basic but vital steps. Essentially, do your due diligence or you could risk everything.

Have you ever wondered if you have the personality and skills to be a successful franchisee?

There are over 1,200 franchise companies operating in Australia, each requiring a plethora of different skill sets in a franchise owner.

Some companies say they have many franchisees that came from corporate downsizing, former CEOs and CFOs and such. Others claim they don’t want franchisee candidates with too much structure. Some companies want a marketing and sales background and others prefer someone without preconceived ideas so they can train that person in their system, their way.

Confusing? You bet! But there are a few key characteristics that you should be aware of to determine if franchising could work for you. Consider the following:

Comparison shop.

Even if your heart is set on one company, it never hurts to look at other opportunities to make sure you are signing on with the best concept for your skills and interests. One way to do this is by attending a franchise tradeshow and/or using a franchise consultant who will match your criteria to a number of companies that match your criteria. There are also numerous Web sites that allow you to see a snapshot of several concepts at once.

Find out what training and support (technical, administrative, training, etc.) the franchisor provides. One of the advantages of buying a franchise is that the franchisor provides intensive training on how to run the business and offers some kind of ongoing support.

Talk to existing franchisees.

This is an important step because they can give you honest feedback and substantiation of what the franchisor tells you. Ask them about their experiences, good and bad, and if they have any advice for you. Create a list of questions to ask so that you are prepared!

Making Connections.

A successful franchisee needs good interpersonal skills. Seem obvious? Well think about this carefully. In your current and past jobs, did you really enjoy working with people?

A franchisee will need to manage employees and work to retain them. You’ll have to build good-will with your customers and gain their loyalty and trust. In many cases, a franchise owner’s role will be to make community connections by joining local organizations and networking with various groups.

If you are truly a people person, you have one of the most valuable assets to successful franchise ownership.

Following a System.

Many people think being your own boss requires you to be a true entrepreneur, someone who wants to take charge and challenge each step in the process. That’s simply not true for franchising. If someone has already done the work, tested the procedures and proven that a system works, a clever person will pay attention and follow that system. This person is truly focused on success.

Someone willing to listen and learn from others to avoid making mistakes will avoid many of the pitfalls of business ownership and find success sooner. That is the essence of franchising.

Willing to Ask for Help.

In the same vein, a good franchisee candidate is someone who will let the franchisor help and support them. At most franchise companies, there are teams of people who will train you in every aspect of the business. There are people to call for help. There are people who will come to your place of business to show you the way. The motto of franchising is that you are in business for yourself but not by yourself. It is up to you to take the help and follow the advice. When you are successful, the franchisor is successful.

Doing whatever it takes.

There is just no substitute for hard work, particularly during the first year. A successful franchisee is someone who is willing to do whatever it takes to get the job done. They show their employees by example. They put in whatever hours necessary to get the job done.

If you are someone who understands what it takes to be successful and have the motivation to make your business succeed, you have the cornerstone of a winning franchisee personality.

Avoiding Risks.

Starting a business by yourself is taking a big risk. Buying a franchise can help reduce the risk. In fact, successful franchisees are typically risk averse. They want to minimize their risk as much as possible and so they choose a strong franchise system with a proven track record.

If you love to take big, bold risks, franchising probably isn’t for you. If you are careful and thorough in your franchise research so you know just what you are signing up for, then you have the stuff to succeed as a franchisee.

So, how many of these qualities do you have? Unlike a magazine survey on health concerns, you can’t get some of the answers wrong and still be in good shape. You need all of the above attributes to consider yourself a great candidate for franchise ownership.

This new business you are considering is your business and the money you invest is your money. You’ll want to have every advantage possible to make it successful. So before you begin research on a franchise company, do some soul searching about your own assets and how they fit with a franchise opportunity.

There’s nothing more exciting than embarking on that road to owing your own business. Just make sure you can avoid the speed bumps along the way.

Where can I look for a franchise?

There are many good sources of information about franchise opportunities. For most people, the process that makes the most sense is to first make sure you understand the business model of franchising. After you’re clear on what franchising is all about, then you can try to identify industry segments that may be of interest to you. Finally, you can research individual companies to see which ones match best with what you are looking for in a franchised business opportunity.

There are many good reference books and articles you can use to understand franchising in general and business format franchising specifically. The best sources to rapidly access this information at no or very reasonable costs are:

Internet web sites
Industry magazines
Trade expo’s
The public library
A good bookstore
A franchising consultant

What should I do before I begin searching for a franchise?

Before you even begin looking at franchises, you need to do an introspective self-evaluation of your own strengths and challenges. Sit down, get out paper and pen, and as objectively as possible answer these questions:

SKILLS / STRENGTHS

What part of your current and past jobs have you liked doing the most?
List your skills and evaluate how well you perform each.
Describe the work environment that most appeals to you.
What skills/hobbies do you have that may be applicable to a franchise business?
Are you status conscious? Does it matter to you what the product or service of the franchise is or does the business potential matter more?
Are you comfortable with sales and the sales process?

CHALLENGES

What part of your current and past jobs have you liked doing the least?
List your weakness, those things you’d not want to do or would want to hire someone to do in a business.

MANAGEMENT SKILLS

Do you have experience managing employees? Did you enjoy it?
Are you comfortable with recruiting employees?
Do you have the experience and skill needed to create a work environment that will allow you to retain employees?

FINANCIAL CONSIDERATIONS

How much capital do you have to invest?
Can you afford to do without a regular income during the start up phase of your new business?
What are your financial goals?
How do you see your lifestyle changing as a result of meeting your financial goals?
How do you feel about taking the risk of becoming self-employed?

ARE YOU A TEAM PLAYER?

Franchising is all about following someone else’s system. Can you picture yourself in this role, executing a system you didn’t create?

Once you have answered these questions, you’ll begin to see a clearer picture of what talents you can bring to a franchise business and what you expect to receive in return. The next step is to start looking at opportunities and evaluating them based on your answers. It may take some effort to find the right franchises so don’t compromise.

Do I need to have previous industry experience?

No, in fact most franchisors are looking for people with no experience in their industry. This is because they want their franchisees to focus on running the business and not performing the labor their concepts require. Franchisors need people who can be effective in areas such as motivating employees, generating sales, and running the day-to-day operations as efficiently as possible. The franchisee role is typically one of management rather than labor.

How do I choose the right franchise for me?

Like any major life decision, buying a franchise requires careful consideration. There are two ways you could make a mistake. The first is that you fail to do thorough research and end up buying the wrong franchise. The second is that you fail to do thorough research and so lack the confidence to buy the franchise that is right for you.

The point is that when evaluating a franchise opportunity, you should be able to eliminate those that don’t meet your needs and won’t help you reach your goals. When you find an opportunity that you can’t eliminate, you’ll know that this is the “one.”

At Franchise Selection, helping people find their ideal franchise opportunity is what we do. As a result, we have worked with thousands of people looking to find the right franchise and realize their dreams.

Here then is our recommended approach of determining what to look for in a franchise that will meet your needs, expectations and goals:

STEP 1.

Before you start looking at franchises, take stock of that most important component of the equation – YOU. There are certain traits that fit a person to franchising. Other traits suggest you would be a poor fit for a franchise system. Some perfectly good traits for running a business for yourself, don’t fit well with franchising. Independence is one of them. Franchisors need people who take direction. A franchise doesn’t want a maverick.

Are you a person who has always been willing to work hard? This trait will serve you well. Franchisors have found that working hard is more valuable than creativity. A common saying for success is 5% inspiration, and 95% perspiration.” The franchisor has already developed the business model. They’re also looking for someone who is willing to put in the hours, however long they may be. If you are longing to set your own work schedule, choose your franchise wisely. Most don’t allow that luxury.

STEP 2.

Next why are you researching this franchise? An inexperienced person may approach the process by thinking, “Well, I love coffee. How about a coffee shop franchise?” And after spending days or weeks of research on brands like The Coffee Club, Gloria Jeans and others, the individual may find he doesn’t have the required capital, the territory or site he or she wants is not available, and they’d have to give up weekends if they owned a hospitality franchise.

Another ineffective way to begin your franchise research is to lock yourself in to one or two concepts. If you think, “I’ll only look at ice cream or food franchises,” you may miss finding that that gem of a concept that would mesh perfectly with your needs.

With hundreds of franchise companies available, keeping an open mind is the best strategy you can employ to get on the ground floor of that new, hot concept or to find something that will really take off in your market.

STEP 3.

Let’s say you’ve found an assortment of franchises that look promising. What do you do next?

Contact the franchisors and request information about their concepts. You will probably get a call from someone in the franchisee recruitment team who will gauge your interest and advise you if the territory you seek is available. You will want to thoroughly view the web site information and any brochures and videos they send you and perhaps fill in an application form and attend several interviews or meetings.

Keep notes on your impressions. Are their materials professional and up-to-date? Are you treated courteously by a friendly and knowledgeable member of their team? Are your questions and concerns answered to your satisfaction?

What you see from the company at this time may be an indication of the type of support you would receive as a franchisee in their system. So poor service now may reflect their attitude towards their franchisees and is worth discussing these concerns when you speak with existing franchisees.

STEP 4.

Your next step is to read the company’s Disclosure Document, a document every franchise in Australia is required to provide. From this you will learn the history of the company, and what costs, royalties and fees you will be required to pay.

Some franchisors also provide earnings claims in the disclosure document but beware these will only be modeled on a typical scenario that may be achieved and are not a guarantee of future earnings or a profit forecast but will help you estimate the potential of the business.

By paying attention to what you discover in a company’s disclosure document, you can weed out franchises that just don’t measure up. Some warning signs of a franchise that is facing challenges are extensive litigation with franchisees or a closing rate of units greater than what’s being opened.

STEP 5.

We consider this step to be of monumental importance when judging the likelihood of finding happiness in a particular franchise: CALL EXISTING FRANCHISEES!

Existing franchisees are your best source of information for finding out what really happens in a business on a day-to-day basis. You can ask what they like and dislike about the business, if they are happy with corporate support, and even get a feel for the type of earnings a franchise makes.

Realise that franchisees can be suspicious when you call on them. Could you be someone working undercover for the franchisor? So start out focusing your questions on things that relate to your priorities. This doesn’t force the franchisee into a corner where he/she is wondering if the answers will result in trouble with the franchisor.

Also be wary of the franchisee that is in trouble and wants to sell their franchise location to someone else. They may be looking for the best way to get out of a bad investment and don’t want to take any chances that something they say will hurt their ability to sell.

In addition to your priority questions, make sure you ask about the good experiences they have had with the franchisor, and any bad experiences that they have had. Ask questions about how much support they get. Find out how long it took to break even. Find out if they found the financial information in the disclosure document accurate. And be sure to ask if they would still invest in the franchise today if they could do it over again.

Watch for any indication that the franchisee is reluctant to talk with you. If this happens with one franchisee, it could the just be that person’s manner. But if it happens in more than one unit, it could be a warning sign that everything isn’t OK.

You may find that some franchisees are doing well. Others might be struggling. Do your best to sort out why this is the case. Be careful that your natural optimism for the system doesn’t prevent you from asking tough questions. Cultivate a little pessimism if it isn’t natural to you. Look for signs that things are not as they should be. You won’t see them if you aren’t looking for them.

It is also very important to speak with franchisees that have left the system. If someone was terminated, get both sides of the story. Often the truth lies somewhere in between both sides. But you cannot know until you listen to both parties.

Not all the information you discover will be negative toward the franchisor. You might find that someone chose not to renew their franchise because it was time to retire. Another person might have had a family need.

Gather a variety of opinions and you’ll get a clear picture of not only the franchise itself but of how you’d fit into the organization. That is why this step is so significant to your being able to make a definitive decision.

STEP 6.

Visit competitors. Ask to speak with the franchise owners. Don’t get your heart so set on one franchise, that you don’t study the competition. By comparing systems, you’re more likely to pick a system that really works for you. At the very least, you may discover that the franchise system has problems that you don’t want to get involved with.

Another way to research competitors is to look at their websites. Many websites have information about franchising with the company. Even if the company doesn’t have a franchise system, the about us page often gives you useful information.

Above all, ask the franchisor:

What do you see as the future of the industry you are in?

Where does this company stand in its industry?

What do you do to keep up with developments?

Is there a viable market for the franchise’s product/service?

Is there still room for growth?

What is its marketing positioning, e.g. price, image, quality?

How does the franchisor maintain margins?

How dependent is the business on price competitiveness?

How good is the competition? These questions apply in all industries, from retail to lawn mowing.

What direction is the franchise company moving in? For example, is it adopting new technology as it becomes available/affordable? Is this important? How will new technology affect costs for franchisees?

What exclusive rights to a territory do I get? Can my territory be eroded by the franchisor? At a later stage, can I sell off part of it if I choose to? How do you define a territory, e.g. how many businesses, homes, geographical area, people, type of population? Do I get first option on an additional territory?

Who finds a site/conducts market research, etc? How is it done?

It is important to get a feel for how ethical a franchisor is. It is difficult to ask questions which uncover this, but try to find out about their reputation from external sources as well as asking the franchisees themselves. Always ask several sources, and don’t be afraid to take up references – that is what they are for. If all the above seems a bit daunting please don’t be put off. Franchisors are used to answering questions about their businesses, and expect to have to satisfy enquirers and their professional advisors as to the integrity of their business. You owe it to yourself to be thorough.

If you are thinking of buying a franchise, it will pay you to sit down and work out what you need to know before you meet with the franchisor. It will probably take several meetings, with increasing levels of detail, before you are in a position to make your decision, so be prepared for that.

If all the above seems a bit daunting please don’t be put off. Franchisors are used to answering questions about their businesses, and expect to have to satisfy enquirers and their professional advisors as to the integrity of their business. You owe it to yourself to be thorough.

STEP 7.

The last step, of course, is making the final decision. Like any major decision, you will be filled with anticipation and anxiety, excitement and fear. Those are very normal feelings, experienced by almost everyone. But if you’ve done your homework and followed the steps as outlined, you should be very comfortable with your decision and ready to become a franchisee.

The step you are considering is a major one so don’t try to do it without taking proper advice. But remember – you will not be doing this work in isolation. You need to enlist the help of suitable advisors (at least a lawyer and an accountant) to help analyse the franchise relationship and it’s potential. It will also be their role to explain to you the implications of the various choices you are now making, so don’t skimp on this advice.

Finally, please don’t be tempted to think that a few hours surfing the Internet is any substitute for doing proper research. There’s some great information available on the internet but there’s no substitute for asking hard questions and getting answers that are individual to your own position and your chosen franchise. Buying a business affects your family, your finances and your future. Do everything you can to ensure that it will be the best decision that you ever make.

Want to be your own boss?