How to Buy The Right Franchise


Buying the Right Franchise


We all have made big decisions in our lives, buying a home, a car, getting married, deciding on a college or job, any of these could certainly be considered one of the biggest decisions any of us will make in our lives.  But starting a business or a franchise still seems to carry some weight that most life decisions just don’t have.  It is a decision that permeates into all aspects of our life and seems to have the widest, deepest impact on us.  With that comes the need to plan, dedicate the time and do the due diligence needed to make the best decision for your future.  There are some cases where the decision is pushed from a timeline perspective and aspects of the planning process need to have brevity, but for the most part, starting a new franchise should not feel rushed.  Take time in each phase of the research and wait for the right move.  Warren Buffet had a quote once related to investing being associated with hitting a Baseball, only he had no called strikes, it was his decision entirely when to swing and the longer he waited generally the better the decision.


Franchise Marketing Systems has helped brands franchise their business models for years and in part of doing this, has worked with a wide range of franchisees making the transition to business ownership.  The process can seem arduous and overwhelming, but with some planning and effort can actually be fun and enjoyable.  Start first with a self-evaluation and figure out who you really are and what your value proposition is in a professional sense.  There are countless tools online even for free personality tests and assessments, start with these!  Myers-Briggs, My Plan, Big Five and others have paid test options which are in depth and offer great insight into your personal preferences, interests and abilities.  The goal with these is to be able to leverage your skill set and find which businesses will offer us the best advantage when taking into account your work experience and skills.  Once you have gone through this, ask others who you have worked with or are friends about what they think of you and your results.  Ask for open, honest and unbiased feedback, the more the better. 


Next, we recommend that you look for Look across the spectrum of industries and markets.  Start first on the consumer end of things – where is the opportunity out there?  Are people buying more food products of a particular type?  Are they using e-commerce more frequently?  Are dollars being spent on a particular type of service more often?  This step alone would help many, many people avoid some of the biggest mistakes made in starting a new business and could be one of the most important aspects of your business decision.  It is mind-boggling to see how many people get lured into a particular industry segment because it happens to be hot at the moment, completely ignoring the fact that the market segment is overcrowded and there is limited spending growth in the market for a particular good or service.  Start with your hunches, ideas and thoughts, then get into numbers.  I always start with the Internet, but then spend some money on a market research report like Thomson Reuters and pay to find out what the numbers look like in a particular niche of an industry.  Go speak with a business counselor or mentor and get direction on your findings and just advice from a different perspective.  The SBA has countless free resources and counselors on hand who can help with these decisions and the IFA (International Franchise Association) also offers counselors and resources to help with the franchise investment process. 


Then define the financial side of your plan.  Once you have narrowed down industries, start to look at the types of business models needed to monetize a product or service to that market and what would be needed for you to get a business moving.  Do a legitimate net worth analysis to figure out what your net worth and financial capacity for a new business might be.  Generally, the SBA requirements are that you should have a 680 credit score, a net worth of 1.5 times the amount you are asking for in a loan and 30% down payment towards the loan.  This may limit some of the businesses or ideas, but it’s better to know this now rather than looking at countless franchises only to find that you can’t open the business.  Make sure to build in cushion for working capital and needed funding to get the business to cash flow, not just hard expenses needed to open the doors.  All of these aspects can be built into a simple business plan of which there are many free versions available online.  Franchise Marketing Systems typically recommends that you have the help of a business advisor or SBA counselor to help build this plan.


Once you have narrowed down some industries that offer opportunity, then begin to look at the franchise brands that match up with those categories.  Instead of letting the franchise investment process drive the business decision, come to the franchise market with a business plan and then find the franchise that meets your objectives.  Start broad and look at as many concepts as you can and pull together comparison charts so you can understand the differences between franchises and brands that are being offered in the market segments you are looking for.  Look for key numbers in the franchise model, Franchise Fee, Royalties, Territory Definition, Marketing Fund and Item 19 definitions.  All of these will have significant impact on which franchise makes the best investment for you. 


All together, starting a business or a franchise is one of the scariest, but most fulfilling and in my opinion BEST decisions you can ever make.  If you do it right and carefully plan your entrance to entrepreneurship, you will never be happier for it.  For more information on how to manage the process of choosing the right franchise investment, always feel free to contact Franchise Marketing Systems, we’d love to help. 


Christopher Conner


Franchise Marketing Systems

[email protected]