Business Advice Daily

Moneymaking Franchises: How To Choose A Winner

by Matt Berkley

By the time Kim Bradley and her husband, Bob, signed the papers to acquire Chocolate Chocolate Chocolate Co., the franchise store they opened in 2003, the couple had spent years investigating, researching and, as Kim describes, “sizing-up” every store she went into.

“When I went on vacation,” Kim says, “I would look at the stores in other towns and ask myself if it was something that might work for me. I got books from the library about owning your own business, about starting a business and about franchising. I read magazines and spent a lot of time looking on the Internet at various franchises and what they had to offer and what the startup costs were.”

Bradley’s story is a typical one. As plenty of franchise owners discover, finding the right type of business—i.e. one that won’t fold within a year—can often take untold amounts of time and diligence.

Then again, sometimes an opportunity can fall into your lap. Such was the case for Cynthia Brown. While working at a physician practice management company in Phoenix, Brown saw how Shred-it, the on-site document destruction franchise she would later set up in St. Louis, made her company’s problems disappear. Brown and a partner liked the company so much, she says, we bought it. “We did not consider any other franchises, as this one had surfaced as an opportunity unexpectedly.”

As a prospective buyer, you’re best bet, according to Dale Oestreich, owner of Franchise Business Services, is to contact a franchise consultant. He describes the consultant’s role, saying, “We go through a step-by-step procedure helping people identify what works for them from a personal standpoint, their goals, financially and personally, as well as what works best for them based on their past experiences.”

The amount of franchises out there is often overwhelming for the first-time buyer to look at, Oestreich says. The list goes into the thousands with 75 industry categories alone to choose from. “What franchise consultants do is narrow down the field. After a few initial meetings with you, we’ll identify three or four franchise opportunities that we feel are better for you,” he said.

Keith Kassel always tells his clients that you don’t buy a franchise; franchises are awarded. Kassel, advisor and president of Opportunities in Franchising, LLC., describes the process as a two-way street with the franchisor looking at the potential franchisee almost as hard as the potential franchisee examines the business. “It has to be a good fit for all parties,” he advises.

There are a number of questions the buyer should ask the franchisor, Kassel says, including:

* What assistance will they provide? Do they assist with training, store design, construction, site selection and feasibility studies?

* Do they have access to demographic studies to get an understanding of the market area?

* What type of support will the franchisor provide once you’ve opened your doors?

* After the initial investment, will there be additional financial obligations requiring working capital?

* Does the franchisor offer any form of financing?

* Ask how many franchises have been sold in the state during the last 12 months and how many are now opened for business?

* Are there any territorial restrictions/protections?

* Has the franchisor terminated any franchisees? Why?

An essential part of any search is getting in touch with several, yes, several franchise owners to get their honest, no-holds-barred opinion about the operation and their relationship with the franchisor. Positive validation from a majority of existing franchise owners is the best indicator of a successful franchise, says Randy Hove, franchise consultant with FranNet. “How you go about obtaining that information is important. You cannot necessarily ‘spot them.’ You must do proper research to ‘discover’ the truly successful franchisors. Not all franchisors are created equal. There are great, good and some not so good.”

A common mistake, says Charlie Scarlett, president of The Entreprenuer’s Source, is looking only for the “hot” franchises and judging the opportunity on “curb appeal.” “Franchises are like mutual funds,” Scarlett explains. “There are approximately 6,000 of them out there and they are all different. They each have unique advantages and disadvantages that may or may not be a fit for any individual. The challenge is to find the one that is right for you. By looking only at what’s ‘hot,’ we discount the importance of our own unique needs and abilities. Chances are what’s hot for the masses is probably not a fit for you.”

Whatever franchise you choose, make sure you are doing it for the right reasons. “Far too many people make decisions based on where they visit often or how much money they think they can make versus finding a franchise that matches well with who they are and what they want to be doing,” warns Steve Hockett, president of FranChoice.

Hove advises all prospective buyers, before they start their search process, to learn how franchising works to be sure they are comfortable with the relationship that exists between the franchisee and franchisor. “That way,” he says, “you will not waste your time investigating a business relationship that, for you, is ‘dead on arrival.’”

Bookmark to: