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Congratulations, you’ve decided to build generational wealth by taking up your first franchise business. In most categories, akin to food service, retail or medical services, you have greater than one option for investing in a franchise. It’s much easier to quit a bad job than a bad franchise or a bad lease. There’s some serious research and interviewing ahead of you to determine which opportunity is right for you. Here are some things you should consider.
Numbers
Each franchise provides estimated start-up costs online or in an easily accessible document, including fees and royalties, construction costs, real estate and more. If this is impossible, run fast. If so, truthfully evaluate how much equity you can contribute and how much you can borrow. Each franchisor also needs to list the franchisee’s potential profit in point 19. Carefully compare the points 19 of the different franchises you are considering, and when checking references from existing franchisees, double-check these numbers.
The franchise needs to be so successful that you’ll want to reinvest to open more locations. The best franchises self-finance latest locations, increasing your investment. Imagine paying to open your first three locations, and then those three locations funding the next three locations. These six entities finance six more, and so on. This creates generational wealth.
References and development
Are current franchisees so satisfied with franchisors and their investments that they open latest locations? If not, run. This step may even help you find mentors. Success leaves clues, and you can learn from the successes and struggles of existing franchisees to ensure your profitability.
If the franchisor is not opening more locations and investing in the very best people and processes for the franchisee to succeed, run for the hills. The franchisor knows higher than anyone else about the success of each location.
Which industry?
We once saw a potential Halal Guys franchisee ask if they really had to use halal ingredients – this is due to the name and faith-based food law. (Guess who didn’t claim this territory?) Your passion, or lack thereof, can be contagious. I suppose a vegetarian could successfully run a hamburger business, but why?
Learn about the industry and trends, especially to understand the franchise’s position in the industry. Perhaps you are a restaurant manager and want to change into the owner – or master franchisor – in a given territory. We have clients who run multiple food service brands – they already understand the business and the importance of the playbook.
Alternatively, perhaps you’ve been in the restaurant industry perpetually and don’t desire to ever see a fryer again. Or you are a company director and you want to deal with people – there are options. We work with a team that has managed many restaurant brands for years and is now opening one GLO30 skincare units. We also have several food franchisees open PayMore Electronics stores and vow not to open any more franchise restaurants.
Brand fame
The best time to change into a franchisee is when your small business is initiating – it will be much more profitable to buy McDonald’s restaurant number 50 fairly than 25,000. But you may not want to be store number 5. Ask about expansion plans, how other franchisees are doing and what they think a franchisee needs to achieve success.
Research each the company and its leadership. Search for the company on Google, find franchisees and talk to them. Most can be joyful to talk about their experiences – if you are successful, it is going to only strengthen their entity’s brand.
Support and exit strategy
The essence of buying a franchise is that you are purchasing an established business model and the guidance and materials needed to launch and run it. Make sure these services and support materials are up to date and meet the needs of your specific business. Start by examining the company culture. Is there a collaborative spirit inside the franchise? Are franchisees encouraged to talk to each other?
Regardless of your level of experience, you care about communication with management staff. Will the company respond inside a reasonable time period, or are they only interested in your royalties and fees after the training period? When you succeed, will they be open to your ideas?
Remember that your first bite at the apple is a large, profitable franchise business that may give you the life you only dream of. Your second bite at the apple is the day you sell that business for 7-10 times your annual earnings, creating generational wealth. You need to know how to best structure your small business to ultimately get it taken over. Always keep this feature in the back of your pocket and remember.
Smart franchise with Fransmart
We discuss this and other topics in our latest “Smart franchise with Fransmart“, which launched on April 2 during my conversation with industry legend Greg Flynn. Flynn is the founder, president and CEO of the world’s largest quick service franchise operator, Flynn Group LP, which diversifies into Planet Fitness locations.
This is the first of 10 weekly podcasts in which guests including Don Fox, former CEO of Firehouse Subs, discuss their 50 years in the restaurant industry; Patrick Galleher, Managing Partner of the Boxwood Partners investment bank, who has conducted transactions for many franchise companies; and Aicha Bascaro, founder and CEO of The American Franchise Academy. You can