| 1) Evaluate your tolerance for risk | | | | at least two current franchisees. This will allow |
| Opening a new business is a scary prospect. | | | | you to observe the daily operations of your |
| There's a lot of personal, professional and financial | | | | potential future business without committing to |
| risk to consider. It's natural when contemplating | | | | personal financial risk. |
| such a profound step in your career to look at | | | | Contact several separated franchisees to learn |
| ways to manage your risk and increase your | | | | about their experience. Understanding their |
| chance of success. | | | | reasons for getting into - and out of - the |
| The Small Business Administration conducted a | | | | franchise can impact your decision. |
| survey that found 62% of non-franchised | | | | 12) Do your due diligence |
| businesses failed within 6 years. A separate study | | | | All franchises are not created equal, and it's your |
| by the United States Chamber of Commerce | | | | job to sort them out. The information is out there |
| found that 97% of franchises were still open | | | | - all you have to do is go get it. |
| after 5 years. | | | | Conducting due diligence on a franchise |
| The research conducted by these independent | | | | opportunity should include: |
| third party organizations clearly demonstrates that | | | | · Check with the Better Business Bureau for |
| choosing a franchise business carries significantly | | | | complaints |
| less risk than starting a business on your own. | | | | · Check with the State Attorney General for |
| 2) Work with what you've got | | | | complaints |
| Making a list of your strengths is easy. But when | | | | · Speak with the franchisor |
| launching a business, it's also important to make | | | | · Request a Franchise Disclosure Document |
| an honest assessment of your weaknesses. | | | | (FDD) |
| Before you get to work selecting a franchise, | | | | · Attend a discovery day with the franchisor |
| take the time to develop a list that honestly | | | | · Make at least 10 calls to current and separated |
| depicts your strengths and weaknesses as a | | | | franchisees |
| potential business owner. Then use this profile as | | | | · Make appointments to meet franchisees and |
| a tool to help with the decision making process. | | | | visit the operation |
| Ask franchise owners questions about the duties | | | | · Job shadow a franchise owner (or owners) for |
| they perform, and compare the job requirements | | | | at least a day (longer, if you can) |
| to your profile. If the business has the potential to | | | | · Repeat as necessary |
| be a good fit, the skill sets required to run the | | | | The purpose of due diligence is to reduce your |
| business will either be skills you already have or | | | | risk. All the steps are necessary, but the most |
| skills you can learn quickly. If this is not the case, | | | | important step is interviewing and job shadowing |
| it's best to keep looking. | | | | a current franchise owner. |
| If a certain aspect of a franchise has a steep | | | | Some franchise owners will allow potential |
| learning curve but the business is otherwise a | | | | franchisees to spend weeks at their business |
| great fit, you may want to consider hiring | | | | learning the ropes. They may be willing to share |
| someone experienced with that position. If this is | | | | detailed financial data, and can confirm or refute |
| the choice you make, be sure to include their | | | | claims made by the parent company. A franchise |
| salary and benefits in the financial business plan. | | | | owner can answer questions the franchisor may |
| 3) Remember to run the business | | | | be legally bound from discussing. You may be able |
| Many potential franchisees make the mistake of | | | | to make assessments about your own |
| thinking they're limited to buying a franchise in | | | | management style or potential business location |
| their current field. In fact, this might be the worst | | | | by observing theirs. Visiting operating franchises in |
| way to go. | | | | the course of due diligence may be the single |
| Some franchises will not allow someone skilled in a | | | | best method for evaluating your potential success |
| particular industry to buy a franchise in that | | | | with a franchise opportunity. |
| industry. For example, a mechanic may not be | | | | 13) When the time is right, hire a legal and financial |
| allowed to purchase an auto repair franchise. | | | | team |
| Skilled technicians sometimes find the transition | | | | Getting expert advice on the legal and financial |
| from hands-on work to management work | | | | aspects of a potential franchise purchase is |
| difficult to make, and are tempted back onto the | | | | essential. Some buyers skip this step to save |
| floor to do the job they're familiar with. | | | | money, but this is not the place to cut corners. |
| The problem with this is that you grow the | | | | The relatively small fees a lawyer and accountant |
| business by running the business, and what a | | | | charge pale in comparison to the enormous |
| franchisor wants to see on the bottom line is | | | | financial loss you'll incur if the business fails. |
| growth. A business owner needs to be out | | | | Bringing in the legal and financial experts too soon |
| networking, marketing and interacting with | | | | in the purchase process can also be a mistake. |
| customers. If there's too much work on the floor | | | | Their professional opinions are necessary and |
| of an auto repair franchise, then the owner - | | | | valuable, but their advice can be expensive and |
| even if he's a highly skilled mechanic - needs to | | | | potentially counterproductive in the early stages |
| hire more mechanics. | | | | of your search. It's crucial to remember when |
| Basic business skills are transferable to any | | | | seeking their input that they should not choose |
| franchise. If your current position involves | | | | the franchise for you. |
| universal roles like sales, marketing or accounting | | | | Bringing in an accountant too soon can mean |
| then your franchise options are practically | | | | paying for them to run Profit & Loss data on |
| unlimited. | | | | every franchise that catches your eye. This |
| 4) No business is recession-proof | | | | onslaught of numbers can cloud your judgment, |
| There's no such thing as a business that can't be | | | | particularly if they're taken outside the context of |
| impacted by a faltering economy. | | | | in-depth, due diligence research on each business. |
| There are, however, certain industries that are | | | | Bring in an attorney too soon can mean paying |
| considered recession "resistant." These are | | | | them to review the Franchise Disclosure |
| generally products and services people can't do | | | | Document (FDD) for every franchise that strikes |
| without no matter how much they're cutting the | | | | your fancy. Studying detailed franchise information |
| budget. | | | | at such an early stage with a legal advisor who |
| The good news is there are hundreds of great | | | | doesn't understand your personality, lifestyle and |
| franchise opportunities in recession resistant | | | | professional preferences can be detrimental to |
| industries. The following are just a few examples: | | | | your search. You could end up inadvertently being |
| Top recession resistant industries: Food · | | | | talked out of the perfect business. |
| Automotive · Healthcare · Medical·Clothing · | | | | Waiting to bring in legal and financial advisors until |
| Education | | | | your franchise choices have been narrowed down |
| Recession resistant franchise industries: Fast food | | | | dramatically is not just cost effective. It's the |
| restaurants· Automotive maintenance, parts and | | | | logical way to use the team's expert advice to |
| repair · Weight loss and fitness · Resale shops | | | | your best advantage. |
| and discount (dollar) stores · Education (tutoring) | | | | 14) Feel the fear and do it anyway |
| and child care | | | | The best way to manage your fear of buying a |
| 5) Objectively evaluate professional advice from | | | | new business is to manage your risk. The best |
| personal sources | | | | way to manage your risk is to learn everything |
| Friends and family have your best interests at | | | | you can, then proceed according to what you've |
| heart, and their advice comes from a place of | | | | learned. |
| love and concern for your well-being. No one | | | | Start the process with no intent to purchase. |
| would suggest making the personal, professional | | | | That removes the chance of getting so excited |
| and financial commitment to launching a business | | | | about business ownership that you take an |
| without consulting your loved ones. | | | | irrevocable leap with the first prospect you |
| But friends and family are not subject matter | | | | research. |
| experts and their advice can - intentionally or not | | | | Above all, ask yourself "can I picture myself doing |
| - discourage a new business venture. The people | | | | this all day?" If the answer is "no," then be |
| who love you worry about what could happen if | | | | grateful for what you've learned and move on to |
| you fail, and their instinct will be to protect you | | | | researching a different industry. |
| from the risk. | | | | The research and due diligence processes get |
| When it comes to the final decision whether or | | | | easier with practice. It may take a few attempts |
| not to proceed with purchasing a franchise, of | | | | to find the perfect franchise, but your efforts are |
| course you will carefully weigh all the advice | | | | not wasted. By actively engaging in the search, |
| you've received. The key is to rely most heavily | | | | you've made yourself familiar with the process. |
| on the advice offered by industry professionals. | | | | And there's no fear in the familiar. |
| 6) There's no such thing as a free lunch | | | | 15) Go it alone |
| There are countless "free" franchise brokers and | | | | Business partnerships are appealing on the surface |
| consultants out there claiming to offer unbiased | | | | because the idea of splitting costs, liability and |
| information on franchise opportunities. They will | | | | workload is tempting. But it's nearly impossible for |
| work with you to assess your needs, and use | | | | any two individuals to work together as much as |
| your professional profile to help make | | | | necessary to launch a new business without |
| recommendations on franchise opportunities that | | | | problems developing. |
| may suit you. | | | | If it is a financial necessity to form a partnership |
| The problem with these services is that they get | | | | in order to purchase your franchise, it's crucial to |
| paid by the franchises for selling franchises. That | | | | define the roles each partner will play well in |
| means they are naturally only going to show you | | | | advance. If at all possible, try to structure the |
| options they'll get paid for. And in the case of high | | | | partnership so you own 51% and have the power |
| profile franchises that may offer them 2 to 4 | | | | to make binding decisions for the business. |
| times the average commission, there's a real risk | | | | Entering a partnership is not to be taken lightly, |
| they may steer clients to those businesses | | | | and should not be done without consulting your |
| whether they're a good match or not. | | | | attorney. |
| These broker services may have access to | | | | 16) Lease, lease, lease |
| detailed data on several hundred franchises and | | | | Most franchises provide detailed specifications on |
| they can be a great source of information. Just | | | | the type of commercial real estate required to |
| be cautious about their recommendations, and get | | | | launch the business, and many will assist with the |
| a second opinion before investing your money. | | | | search for an appropriate property. |
| 7) Tune out the hype | | | | Leasing a commercial property is nearly always |
| Never before was the adage "if it sounds too | | | | preferable to purchasing one. The capital required |
| good to be true, it probably is" more applicable. | | | | to purchase a property is better reserved to fund |
| You're going to hear a lot of hype - good and bad | | | | operating costs for the first few years. It's also |
| - while assessing potential franchise opportunities. | | | | preferable to sign short lease terms with options |
| Between marketing blitzes and human nature, it's | | | | to extend rather than committing to a long lease |
| easy for success stories to spread like wildfire. | | | | term. |
| Think about the guy who lost weight eating | | | | Because many commercial leases include taxes |
| Subway - that story is so pervasive it's become | | | | and assessment fees buried in the fine print that |
| almost impossible to separate the allegory from | | | | can cause financial problems for your business, it |
| the restaurant in the public's perception. The hype | | | | is very important to have your attorney review |
| surrounding that marketing campaign will have an | | | | any commercial lease before you sign it. |
| impact on potential Subway franchisees for the | | | | 17) Don't forget you've got to eat |
| foreseeable future. | | | | One of the most common mistakes people make |
| It's also natural for people to look for something | | | | when working up a financial business plan is |
| to blame when things go wrong. Because of this | | | | forgetting to pay themselves. This simple |
| there are also going to be negative, emotionally | | | | oversight is at the root of a lot of failed |
| charged franchise stories in circulation. However, | | | | businesses. |
| keep in mind the nuanced details that created | | | | In a perfect world we would all have enough in |
| such situations are never discussed; only the | | | | savings to go a year without a paycheck, and |
| attention-grabbing outcomes. | | | | everything a new business makes could go right |
| No one is suggesting you completely ignore these | | | | back into making it stronger. |
| stories, because hidden beneath the hype there | | | | The reality is we've all got bills to pay. It's |
| are likely valuable lessons to learn. Learn from | | | | important to be honest and thorough when |
| them what you can while keeping in mind what | | | | estimating the salary the business will need to pay |
| they are: unique situations with complex back | | | | you. Cutting yourself short will create enormous |
| stories that probably have no bearing on your | | | | problems, especially if your fledgling business can't |
| success whether or not you choose the same | | | | afford to give you a raise yet. |
| franchise. | | | | This is one area where decisions you make for |
| 8) Look beyond the big brands | | | | the business directly impact your personal life. The |
| Sometimes it's easy to forget there are | | | | franchise isn't going to do you much good if your |
| thousands of franchise opportunities out there, | | | | heat's turned off and the bank is foreclosing. |
| because the big name brands get all the attention. | | | | Taking extra care with this critical detail could |
| When you're in the early stages of your search, | | | | someday save more than just your business. |
| it's a good idea to bypass the overblown | | | | 18) Consider alternate financing options |
| marketing of the huge franchises and make an | | | | In the current economic climate, strict lending |
| effort to learn about the "no-name" franchises in | | | | standards are making it harder than ever to get a |
| your industry of interest. | | | | commercial loan issued. When loan approval is a |
| There are quite a few advantages to lesser | | | | problem, it is worth considering your 401(k) or |
| known franchise brands. For instance, they are | | | | IRA as a resource for purchasing your business. |
| often cutting edge concepts that can get a lot of | | | | These self-directed retirement structures do |
| marketing attention. Lesser known franchises | | | | permit individuals to actively invest their |
| haven't yet saturated your local market. And | | | | retirement funds into a business without taking a |
| they're usually less expensive to start up, which | | | | taxable distribution or incurring early withdrawal |
| means less financial risk. | | | | penalties. A successful use of this financing |
| Of course, you may be looking for the security | | | | method offers the chance for a greater potential |
| and benefits that come with a big name franchise. | | | | return on your money than the original |
| Criteria such as national marketing campaigns, | | | | investments. |
| standardized employee training, management | | | | Using your retirement funds to purchase a |
| support and strong purchasing power may be at | | | | business is not to be taken lightly. But if done |
| the top of the checklist for what you're looking | | | | right, having your own business could be the best |
| for in a franchise, and there's nothing wrong with | | | | retirement plan of all. |
| that. But if you're not interested in being another | | | | 19) Lead by example |
| instantly recognizable box in another strip mall, | | | | If you're not working hard for your business, |
| then a 'no-name' franchise might be for you. | | | | neither will your employees. |
| 9) Look beyond the price tag | | | | At the end of the day, the only one who cares if |
| Just because a franchise is more expensive does | | | | your business succeeds is you. This is not the |
| not mean it will be more successful. | | | | time to kick back and count the money. In fact, |
| It's important to evaluate every aspect of a | | | | that attitude is the quickest way to ensure that |
| franchise - financial projections, monthly franchise | | | | soon there won't be any left to count. |
| fees, franchiser support levels, issue response | | | | Even the most diligent business owners may |
| time, customer base and marketing, to name a | | | | forget that employees can't see through the |
| few. The price tag is a factor to consider, but | | | | office door. They have no idea you're calling |
| should not be the sole criterion for evaluating the | | | | customers, ordering supplies, writing a marketing |
| quality of the business opportunity. | | | | plan, reviewing applications and trying to find a |
| Once you narrow down your preference to a | | | | way to cover next week's payroll. For all they |
| particular industry, conduct due diligence on 2 to 3 | | | | know, you're taking a nap. |
| franchises in that industry. Gathering adequate | | | | When an employee sees a manager coming in |
| information on several comparable franchises will | | | | late, leaving early and taking long lunch breaks |
| allow you to make an informed decision. | | | | they think the worst. They don't understand that |
| 10) Comparison shop | | | | you came in late because you attended a 7 am |
| Once you decide a franchise is right for you, keep | | | | referral group meeting. They have no idea that |
| looking. | | | | your lunch ran long because you were signing a |
| If you decide to purchase a franchise of Coffee | | | | deal with a big new client. It doesn't occur to |
| House A, then it's time to start looking for | | | | them that you left early so you could attend a |
| reasons not to buy it. Build a list of questions, and | | | | Chamber of Commerce networking function. |
| then go talk to owners of Coffee House B and | | | | Communication with your employees can help |
| Coffee House C. | | | | them see you're working as hard as they are. |
| Be blunt - ask the competing franchise owners | | | | Share your growth projections and help individuals |
| why they feel their business is better than Coffee | | | | set goals to meet them. Bring key employees to |
| House A. Ask them what made them choose B | | | | client meetings. Send high performing employees |
| over A and C. Ask them if they would | | | | to networking functions in your place. By giving |
| recommend you buy the same franchise, and | | | | your employees a role in growing the business, |
| don't stop digging until you're clear on the why (or | | | | they'll take pride in supporting your success. |
| why not) of their response. | | | | 20) If you don't love it, don't buy it |
| Build a spreadsheet comparing the details of the | | | | Confucius said "Find a job you love and you'll |
| franchises. Include data such as the benefits | | | | never work a day in your life." |
| offered, financial commitment required, estimated | | | | If you wake up in the morning and dread going to |
| monthly expenses, commercial lease requirements | | | | work, your franchise will not be successful. It's as |
| and franchise fees. | | | | simple as that. |
| If your franchise preference stands up to the | | | | The beauty of franchising is the endless variety |
| scrutiny, then you're on the right track. | | | | of options - there's literally something for |
| 11) Contact current and former franchisees | | | | everyone. You just need to devote the time and |
| The best way to find out if a franchise is right for | | | | effort to figuring out which one will make you hop |
| you is to go behind the scenes and ask a lot of | | | | out of bed every morning, happy to be doing |
| questions. | | | | what you love. |
| Before making a buying decision, prepare a list of | | | | 21) Use every resource at your disposal |
| questions. Contact at least five current | | | | Investing your personal, professional and financial |
| franchisees and make an appointment to discuss | | | | future in a franchise opportunity is a big decision. |
| your interest in the business. Whatever else you | | | | Use every source of information you can find, |
| discuss, be sure to ask the questions you | | | | and compare the data to make sure you're |
| prepared. | | | | getting the whole story. |
| Try to arrange an all day job shadow session with | | | | |