Buying a Franchise: the Importance of Talking to the Franchisor
One thing that surprises me when working with people who go through the franchise search process is the fact the large majority of them, while trying to execute their search, actually fail to talk to a franchisor.
Once candidates begin their search they usually do quite a bit of research themselves. They go online, fill out forms and send out requests. However, they fail to act on the majority of information sent to them and usually resort to examinations of the franchisor’s site and a short review of marketing materials available.
It appears that the candidates often base their opinions about franchise opportunities mainly on their impressions of seeing the business from the outside. They fail to talk about the business with the company itself. They don’t consider an even more valuable next step in the process, serious discussions with the franchisees currently in the system.
Best Single Question to Ask When Buying a Franchise
During the process of buying a franchise potential candidates come up with numerous questions. If they are prudent, they will evaluate all aspects of the selected concept’s business model, talk to the potential franchisees and gather information during their visit to the company headquarters. In my experience of evaluating franchises I have discovered that one questions, in particular, provides a good general overview of what a particular franchise concept is all about.
This question is directed to the franchisees that are currently part of the system. Talking to them is one of the most important things the candidate can do when planning to buy a franchise. I recommend asking that question towards the middle of the general conversation with a specific franchise owner. Primarily, this question has financial implications. Financials should be the centerpiece of any conversations held during the process of buying a franchise.
The question is: “Do you think that the value that you get in this business is worth the fees and royalties paid by you to the franchisor?” It may not seem like much, but I found that this question, more than any other, gets people to open up on their experience of being a franchise owner. Most likely, they ask themselves this question ever month they have to make that royalty payment. Thus, you are likely to receive an elaborate answer with some personal reflection built into it
Buying a Franchise: the Value of a Franchise Consultant
Since I am a franchise
consultant/broker, some may dismiss this article as biased. However, the main point that I am trying to address on this page is to analyze the actual dynamic of searching for a franchise and the realistic value franchise consultants bring to the process.
When searching for a franchise, entrepreneurs often come across various franchise consultants and wander: “Why should I use their services?” The answer is simple: “To save time and money.” Franchise consultants may not provide a total solution, but their services usually come at no cost and they regularly spend hours interacting with people who buy and sell franchises, making them a good source of information
It is rare to for anyone to actually know a franchise consultant before seriously starting their search. Plus, there are just not that many franchise consultant around. It is a niche profession that was born from the franchisors’ constant thirst for more qualified candidates. The first time people start hearing about the franchise consultants is when they actually start searching for a franchise.
Franchising - the Significance of Key Metrics in Buying a Franchise
Assuming that a franchise candidate has found the system that matches their needs, their lifestyle, and they can see themselves owning that business, the questions of evaluating financial performance quickly arises.
Majority of people have little experience when it comes to buying a franchised business, new or existing. They often heard that franchising is a safer way to go, and; once they identify a franchise, they expect for financials to sort of “fall into place”.
Franchise buyers often get confused by the numbers presented to them during the due diligence process. During discussion with the franchisor and current franchisees they get exposed to all kinds of convoluted data and quickly become confused and hesitant. They start to realize that each franchise owner, even in the same system, has a number of circumstances (costs, location, taxes etc.) that make that business look, financially, different from the rest of units in that system.
There is a way to cut to through most of that. In my experience, the key to evaluating most businesses is the ability to identify key metrics (preferably one) that drive the business under evaluation.
Buying a Franchise - the Value of a Franchise Fee
Although it may seem like it at times, franchising is not designed to be a partnership between a Franchisor (seller) and a Franchisee (buyer). Instead the relationships is designed to provide the Franchisor with a vehicle to grow it’s business buy bringing in franchisees; who, in turn, are looking to establish a proven business and to minimize their risk of failure.
Potential franchises often think that a franchise fee is how a franchisor makes money. Although it may be true for some, the majority of solid franchise systems utilize the franchise fee to pay for the expense of finding and establishing new franchise owners.
The Franchise Fee, as it is often described by the numerous Franchisors, is the cost of putting the Franchisee into the business of the Franchisor, not as a partner, but as a participant. The fee enables then to recoup the cost of doing that. Some of the Franchisors costs include:
• The cost for a turn key systems provided by Franchisor.
• Training costs, to make sure that the Franchisee is able to operate the systems and the business o Read more
Advantages of a Franchise - Buying a Franchise Versus an Independent Business Start-up
The main advantage of buying a franchise
is the reduced risk of failure. When thinking about starting a business, entrepreneurs always seems to compare buying a franchise to and independent start-up. That is a mistake.
Depending on which study is being quoted, and which timeframe is being analyzed, the numbers are staggering in favor of Franchising. The numbers show more than a 90% survival rate after five years for Franchisees versus in the range of 20% for stand-alone start-ups.
As you can see, comparing franchising to and independent business is like comparing apples to oranges. Unless you are furiously independent and self-confident entrepreneur and have a unique idea which consumes your life or have an abundant expertise in a specific area, franchising is always a safer way to go.
The key to the success of the franchise model is the support and collaboration of the proven system. Business is always about building a system and franchising offers the most efficient way of delivering business systems to anyone who wants to be in business for him (her) self.
The Key to Buying a Franchise
The key to buying a franchise is the process of Due Diligence. This is true for both, the Franchisor and the potential franchisee. This is the process majority of candidates often overlook.
Buying a franchise is different from buying almost anything else, even from buying an existing independent business. The key to due diligence in the process is the Franchise Disclosure Document (FDD), earnings claims (if available) and the ability to speak to current and former franchises.
Speaking to the current franchises is especially important. A solid franchise or a savvy franchise consultant can provide you with a number of tips on how to go about finding the best information. Often, potential candidates say that they are not comfortable in asking the tough questions. They don’t want to “bother” people in finding out the intricacies of financials and all the details on operations. This sentiment is understandable, but in order to make the right choice when buying a franchise you have to get as much detail from the franchisees in the system as possible.
Franchising - How to Avoid 10 Common Pitfalls
The purpose of this article is to address 10 most common pitfalls people face when looking to start a franchised business.
1. You are being “sold” on why you should have “this business”:
If a sales person from the company is selling you on the idea of why you should buy this franchise, understand it is a biased opinion. Use the information the sales person gives you, but do your OWN research on why YOU should have THIS business.
2. Not focusing on the business model and how it matches YOUR lifestyle:
A business name or type may be catchy, but is it the right business for you? Focusing on the business model will match you closer to your best natural choice. A business model will focus on your goals and needs and help you fit it in to your desired lifestyle: number of employees to manage, income you need and want, the number of days you are “open” per week, the number of hours you are “open” per day, the location of your business, etc.
7 Recession Resistant Franchise Options
Most economists do not expect the U.S. economy will go through a depression related to the credit-crisis-mortgage-meltdown-bailout bonanza. However, a recession appears to be a certainty.
At a time like this, not many people may feel like it’s a good time to start their own business. However, many of them may not have a choice. Indeed, a recession spells bad news for employees in the corporate America. Recent surveys show that a large number of corporations plan to lay off workers in the next 12 months.
This economic situation creates an opportunity for workers who are laid off or who do not wish to end up in that situation to start their own business. Buying a franchise may be the safest way to do that. Despite the economic ups and downs thee are several franchise sectors that are, if not recession proof, then recession resistant.
10 Ways to Finance a Franchise in a Tough Economy
Often, especially in the last 5 years, a large portion of franchise purchases were financed with home equity. Today, with housing prices taking a tumble across the country, the situation has changed dramatically. Even in these challenging economic times it is still very much possible to finance your franchise purchase. The most important thing is to be prepared and to have a strong desire to run your own business.
In general, potential franchise owners need to be aware of their current financial situation, have a prepared balance sheet, know their credit score and upon finding the right franchise, invest time into working on their business plan.
Something else to consider, franchisers often look at several financial criteria when evaluating prospective candidates. The terms that come into play are Liquid Capital, Total Amount of Investment and Overall Net Worth. Each company’s requirements are different. Here is the overview of the main financing options available to you:
1. Commercial Bank Loan
A way to finance your business is to take out a bank loan for part of the cost. To qualify for a bank loan, you will need sufficient personal collateral to secure the loan. Many franchisors have relationships with lending institutions and will assist their franchisees in obtaining these loans.