What is the Process of Investigating a GOOD Franchise?
In this episode, we uncover how to us franchise research to purchase a GOOD franchise. The average franchise buyer does not know nor understand many aspects of the franchise system, which often results in a poor purchase decision.
When a GOOD franchise is selected, however, the results can be magical. A good franchise purchase allows the owner to build equity, have flexibility, enjoy the brand value of a national or international chain, AND control their own future.
Average “Joes” can become exceptional franchise owners with the right alignment. We define “GOOD” alignment as a good brand – which is GOOD for both you and your market. Ready to learn more? Check out our top five takeaways that can help guide you toward a path of success.
1. How to Identify a Good Match
Choosing the right franchise can be tricky – there are a lot of factors to consider! The first aspect is that you should choose a franchise that is based upon a role that you enjoy. Ask yourself, “Will I enjoy operating this on a daily basis?” If the answer is yes, then you are on the right track.
“Going out and choosing the hottest franchise out there right now does not mean it’s the right one for you, and the goals that you’re trying to achieve,” Eric Reiss explains.
Second, you must take time to research and fully understand what that franchise can do for you before you make the decision to dive in headfirst. Make sure this franchise is worthy of your time before you begin conducting your pre-purchase research.
If you make a poor decision at the very beginning of this process and proceed with three months of research on the brand, you’re going to end up realizing this wasn’t what you were looking for, and feel that you wasted your time. After getting to this point, many choose to end their journey before it really begins, missing out on an opportunity for great success.
2. Do your Due Diligence
When embarking on your franchise journey, one of the key factors to consider is your own due diligence. When you receive the Franchise Disclosure Document (FDD), it will be able to answer most of the questions necessary before moving forward with a purchase.
Question 1: How much will this cost me?
Question 2: How much money am I going to make?
Question 3: How quickly can I make it?
These beginning questions are extremely important, as they will help ensure that you reach your ultimate goals.
“This isn’t unique to franchising,” says Eric. “If you’re going to invest in anything, you better be asking, how much does it cost me and how much am I going to make?”
The next question to consider is:
Question 4: What are other people saying about it?
How the franchises have performed according to the people who have already bought it, is a big deal, perhaps the biggest.
3. Enlist a Broker
When you use an FBA Broker, your journey becomes a mutual discovery process. Working together to identify your goals. You will discover that it is not about the hottest franchise out there – it’s about which franchise is a good fit for you, your family, and your market.
“Once we have identified their criteria in a franchise, we go to work by matching their specific criteria with hundreds of franchises we have relationships with,” says Amanda Ramirez. “These franchises are vetted by our company, we research metrics that the franchise has to disclose – data that comes directly from their Franchise Disclosure document – we research the candidate’s market to make sure those franchises are a viable opportunity there. We also have access to funding sources, CPAs, and franchise attorneys who can educate our candidates and guide them in the right path.”
Many first-time buyers fall into the trap of looking at the sales and marketing materials first. Although these can be attractive, they do not tell you the full story. An FBA Broker will ensure you have the proper tools and resources to look into the full story of the franchise, not just the appealing parts.
4. Ask Yourself These 3 Key Questions
When you are beginning your franchise journey, you have to first ask yourself:
Are people buying what I’m going to sell?
Whether it’s accounting services or window washing services, will people buy it? If the answer is yes, then you can move onto the next question.
When considering regional sales:
Are people buying sufficient quantities in this market?
This relates to the competition and the demographics within your region. Is there too much competition already? Are there enough people that are the right age and earning the right income to buy these services and products in the area? This question needs to be answered with a firm yes or no.
Finally, question number three:
Is what you’re selling better than the competition?
Even if you might be wrong, you have to believe that the answer is yes.
“That’s the value proposition. You have to believe in it,” says Eric. “If you believe in the value proposition and you’ve done all the steps that we’ve talked about, you will be successful.”
5. Don’t be Deterred by an Imperfect Record
If you find blemishes on the franchisor’s record while conducting your pre-purchase research, you absolutely shouldn’t rule them out.
“There’s no such thing as a perfect “anything”, including a franchise, and that’s why it’s important for a candidate to know the pros and cons of that system right from the beginning,” says Amanda.
“For example, if a franchise system has terminated a lot of franchisees in the past 3 years, find out what actually happened and from there decide on whether you want to move forward or not.” The terminations may have been a good thing for the future of the brand. Sometimes brands find opportunities and pivot directions a bit to make the owners more money. It may have been that the old owners don’t want to make that change so they decided with the franchise on a mutual exit instead. The information is level one of the investigation, understanding the reasons behind it is really important for a proper review.
FBA Brokers are able to inform you right away of a franchise’s retention rate, so you are not finding out too far along into the process. Along with other factors such as bankruptcy and litigation, our brokers allow you to have all of the information needed in order to conduct proper due diligence.
“This is a service provided at no cost to the buyer, since we are compensated by the franchisor’s marketing budget, so use it!” says Amanda. “Working with a professional will ensure you are finding the best possible option and you are not missing any critical steps to get there.”
Why FBA?
Our mission is to bring clear and truthful guidance to franchise opportunities. Our priority is to ensure you are well informed and you’ll be able to make the right decision when it comes to purchasing a GOOD franchise.
When you’re ready to begin your path to success, we’ll match you with someone who is going to invest in you and provide qualified research and information, past the glossy sales materials.
A franchise is a big investment, at FBA we know that every step matters, and you matter. Contact us today to get started on your franchise journey.
Hear more from Sabrina Wall on how to conduct your franchise research by watching the full episode below.
