One way to approach your franchise search is to focus on the businesses that you personally enjoy. Maybe it’s the pizza you can’t get enough of or the gym that keeps you motivated.
You can easily whittle down your list of potential franchises by paying attention to your own buying habits. But thinking like a consumer isn’t always the best way to approach buying a franchise.
Many other factors go into making a wise franchise investment. So, to help you determine if your desired franchise speaks to you as a consumer or a potential franchisee, let’s look at some important questions to ask yourself as you search for your new franchise.
What Do You Love About the Product or Service?
Some products make our lives easier. Some help us accomplish a task that would be much harder without them. Some just taste great and we don’t need any reason beyond that. What we love about a product or service is directly related to what’s marketable about it.
Sometimes, however, our love for a product or service is more personal. If you grew up with one particular brand, you might have an emotional connection to it that influences how you view the franchise opportunity. Understanding your own motivations, and asking yourself sincere questions about why you’re considering certain opportunities, is important for getting to the core of what you want out of a franchise.
Does the Business Model Match Up?
No matter how much you love the product or service, buying a franchise is an investment in the future, not an exercise in instant gratification. You need an opportunity that’s going to meet your goals in the long term.
Even if you believe in the product or service and could sell it with your hands tied, you need a business model that’s attractive to you and fits how you like to operate. Running a business you love, in a system that doesn’t function how you’d prefer, can lead to conflicts and a less-than-satisfying experience.
When you’re looking at FDDs and asking questions of franchisors about training and support, make sure you consider the quality of the system and look for good examples of its past success. It does no good to have a desirable product if the system isn’t matching up.
Is There a Good Cultural Fit?
In the same way that a potential franchise has to fit how you like to operate, a company needs to share your values and ideals. Few things flatline your excitement like finding out your franchisor has a culture you can’t stand.
Maybe that ice cream you love has a company culture that’s too strict. Maybe the spa you frequent doesn’t have enough structure. Don’t overlook the way the company operates just because you like what they do.
Are You Prepared for the Industry?
Eating sausage and making sausage are two very different things. Just because you enjoy the end result doesn’t mean you’re prepared for the process. The same is true for something like childcare or pet grooming. Loving kids or dogs doesn’t necessarily mean you want to work with them every day. Think broadly about the industry and how exactly you’ll have to get your hands dirty.
Are You Susceptible to Burnout?
It’s easy to think you’ll never get tired of your favorite product or service. We’ve all said something like, “I could eat this every day.” But when you’re turning your passion into your livelihood, you don’t want to wake up one day and find out you hate what you once enjoyed — then have to continue selling it anyway.
How Important is Loving the Product Anyway?
This is a deeply personal question. For some franchisees, the product or service provided is incidental. They’re only interested in the numbers and they might be planning to operate with a more hands-off approach across multiple units anyway.
For others, the product is everything. Their passion lies in one particular industry, with one particular brand, and that’s all they want to invest in.
There’s no right or wrong answer to determining how important the product is when choosing your franchise. It’s something you have to answer for yourself. But as you search for your next franchise opportunity, remember that there can be more to the process than picking the product you like the best.
The real estate adage “Location. Location. Location.” is just as true for businesses as it is for homes. The location of your business affects everything from customer access to supplier relations to how much you enjoy the daily commute.
With that importance in mind, let’s look at some aspects to consider when choosing the right location for your new franchise.
What Type of Franchise are You Buying?
Different businesses have different needs when it comes to location. Some require a strong customer presence, and some can actually benefit from being a bit off the map.
If you’re a retail establishment or restaurant, your customers need to easily be able to find you. But if your franchise is based on services conducted outside of the office such as plumbing or cleaning, a location away from bustling city centers can be beneficial as you cut costs like rent and signage. Many businesses can even be run from home, saving you even more.
Understanding your industry and your needs is the first step in selecting a location, along with understanding your business’s place in the community.
The demographic makeup of an area includes factors like the average age of the people, their median income, and the availability of resources such as schools, shopping, and transportation. Understanding the area means learning how these different parts of a community feed into each other.
A fast food franchise near a college campus might make more sense than a pricier fine dining restaurant. Similarly, a child-friendly restaurant may work best near a shopping mall rather than an industrial park. The demographics will help you gauge how well your franchise will fare in the area, who your customers will be, and from what other establishments you can benefit.
Is the Space Accessible?
If your business relies on customers coming into a brick and mortar location such as a retail store or restaurant, then accessibility should be a top concern. If you rely on walking traffic, are there other attractions within walking distance that will draw people to the area? If you expect most customers to drive, is there ample parking? Accessibility can be the reason a customer chooses you over the other guy.
Sometimes accessibility comes down to something as simple as which side of the street you’re on. Paying attention to traffic patterns on your city’s axial roads can help you grab customers as they drive. A coffee franchise might do better on the side of the street that leads toward a business district, catching people on their way to work. A casual dining restaurant might work best on the opposite side, so they pass you on their way home.
Accessibility is all about ensuring that your customers can find you easily every time. No matter how much they like or value your business, if it’s difficult to access then they might just go to the competition. Speaking of which…
How’s the Competition?
Have you ever noticed how multiple types of fast food franchises tend to cluster together? It’s not unusual to see a burger joint next to a taco shop next to a Chinese buffet. While it’s easy to assume that having your competitors right next door would be a hindrance, that might not necessarily be the case.
As Greg Kahn, founder and CEO of Kahn Research Group, who’s done location research for Arby’s, Subway, Home Depot, and others told Entrepreneur, “Quite simply, the best place to be is as close to your biggest competitor as you can be. By being in close proximity to your competitors, you can benefit from their marketing efforts.”
When similar businesses set up near each other, they create an area that’s easy to remember for customers and options that keep them coming back. So, while you may not want to look out the window every day and see the goofy grin of your competitor’s mascot, it just might be helping your business.
Other Issues to Consider
Choosing the right location for your franchise isn’t just about how the customer sees you. It’s also about how regulations, zoning, and area costs will affect your business. Some additional aspects to consider are:
This can be one of the single biggest expenses for any business.
Is the area you have in mind properly zoned for your type of business?
Different jurisdictions have different tax obligations that can affect your bottom line.
Wage laws. Similar to taxes, wage requirements differ from location to location and should be taken into account as you plan for ongoing expenses.
As you use our franchise business search tool to find your next opportunity, consider which location will work best for the type of franchise you choose.
As an investment and a point of personal pride, you want your franchise business to succeed. So does your franchisor, your customers, and your employees. So, as you begin your franchise journey, let’s look at some reasons franchises fail and what you can do to avoid them.
1) Lack of Capital
We’re putting this right at the top. You can probably guess why. It’s no secret that starting a business costs money, but some potential franchisees underestimate exactly how much money their chosen franchise will require.
The information provided by the franchisor, including the Franchise Disclosure Document (FDD), will provide a general idea of the financial requirements including net worth and liquid capital. But paying attention to ongoing costs like rent, wages, franchise royalties, taxes, and your own living expenses is essential for staying solvent.
How to avoid this: A thorough examination of your available capital should be a part of your initial research. Start your franchise with plenty of capital in your pocket — more than you think you need — and consider reasonable financing options. Then keep a realistic budget through the life of your franchise.
2) Lack of a Strong Business Plan
Going into business without a business plan, or with only a partially or hastily completed one, is like hitting the road without knowing where you’re going. You end up driving in circles, getting lost, and wasting a lot of time. Buying a franchise, like starting any business, requires a forward-thinking business plan so that everyone involved can see clear steps from point A to point B — from starting out to becoming sustainable.
How to avoid this: Put in the effort to create a quality business plan, potentially with the help of a business consultant or business coach, read everything you can get your hands on from the franchisor, and think hard about your own goals and abilities.
3) Thinking There’s Nothing Left to Learn
Franchises are great for people with limited business experience because they provide proven systems and ongoing support. But for people with extensive experience, thinking you know all the ins and outs of the industry can get you into trouble.
How to avoid this: Remember that a franchise has a specific way of doing things that may differ from what you’re used to, even if you’ve been in the industry for years. Do your research and due diligence before and after you open your franchise and listen to the advice of fellow franchisees — especially when they’ve made mistakes from which you can learn.
4) Failure to Follow the System
One of the easiest ways to fail is by failing to follow the proven system created by the franchisor. The system exists because the company has learned the best approaches to their industry over years of hard work and experimentation. They’ve worked out the bugs so that you can reap the benefits.
How to avoid this: Take the training, support, and advice of the franchisor seriously and incorporate it all into your operation. The system may not be foolproof but being a franchisee means being a part of a larger brand with documented records of success.
5) Lack of Franchisor Support
Sometimes franchises fail not because the franchisee made mistakes but because they weren’t properly supported throughout the process. Whether the initial training was insufficient or ongoing backing was too limited, running a franchise without enough support from the franchisor is a recipe for disaster.
How to avoid this: Carefully read everything provided to you by the franchisor so you know what their obligations will be. And speak candidly with current and former franchisees about their experiences. That information will help you choose the franchisor that provides the right amount of support for you.
6) Choosing the Wrong Franchise for You
Some franchisees have trouble from the start because they chose the wrong franchise for them. Perhaps the decision was made too quickly or was based on emotional factors that don’t hold up over time. Whatever the reason, getting stuck in a franchise that’s not a good fit leaves everyone unfulfilled.
How to avoid this: Get to know yourself and your goals for your franchise. Then think about how the franchises you’re considering will feel tomorrow and ten years from now.
Franchising always includes risk, so keep all of these potential missteps in mind as you search for your new franchise.
What could be more rewarding than being in a position to affect future generations? When you own a children’s franchise, you will experience the joy of watching children learn something new. Whether it’s solving a problem, learning to code, understand the meaning behind science or get excited about art, dance or music.
Did you know there are more than 74 million children in the United States? The latest U.S. census says that number will increase to about 80.3 million by 2030. The children’s services and products market is thriving and is essentially recession proof. Parents spending money on their children will never change.
The private tutoring industry, by the year 2020, is expected to reach over $128 Billion. Zion Market Research, states, “Globally, the private tutoring market will reach $177,621 million by 2026, with an average growth rate of 7.1% between 2018 and 2026.”
Today, you’ll find children’s franchise programs that include enrichment programs in chess, robotics, sign languages, computer programming and coding, engineering, science and even cooking.
You did it! You’re a franchise business owner. And while one of the reasons you decided to franchise was to own a business with a proven system and brand recognition, including national advertising campaigns, you still have to think about marketing in your local community.
Isn’t That What the Brand Fund Is For?
Franchises didn’t become the big companies they are without brand consistency. This ensures that no matter which location a customer chooses to visit, nationally or internationally, they’ll be met with the same brand experience every time. One of the ways franchisors are able to do this is by dedicating a portion of their profits to national advertising. That’s why part of recurring fees you have to pay as a franchisee go toward a brand fund.
Although this may differ between franchises, many franchisors offer their franchisees comprehensive marketing plans, including television and radio commercials, direct mail efforts, public relations initiatives and more.
Yes, national campaigns funnel customers into all franchises within the system, but there’s no guarantee these efforts will bring people into your franchise business.
Okay, How Do I Market My Franchise Business in My Local Community?
Like we said, you’re covered on a national or wide-range level, so it’s your job to reach the people in your surrounding area.
In order to reach your local customer base in a big way, you might have to think small. We’re talking about putting yourself out there by attending community events, networking and more. Think about it; your local neighborhood is (or will soon be) your pool of customers.
Get to know your local audience
When it comes to marketing, knowing your target market is key. But, your franchisor’s tactics to reach your specific store’s surrounding neighborhood may not work. That’s why it’s crucial to get to know your community.
Introduce yourself, pass out flyers, offer specials or give out samples to nearby businesses, schools, apartment complexes and more. It’s the perfect way to show people in your local area that your business is close by and you’re excited to serve them.
Partner with other businesses
You need to get the word out about your business, and there’s no better way to do it than with other business owners. Join your local Chamber of Commerce or Small Business Association and attend networking events.
These are all a great resource to meet other business owners who may become or refer you to future customers. If you form partnerships with other businesses, you can borrow from each other’s audience and get better visibility in your area.
Sponsor local organizations and charities
People love seeing business owners give back to their communities. Sponsoring a high school’s sports team or donating a portion of a day’s profits toward a charity is a great way to build brand awareness and show you care about the community.
It doesn’t hurt to send out a press release about your good deeds or the impressive amount you were able to raise to local media outlets. Speaking of which…
Create buzz with local media
Whenever something notable happens for your franchise business, send out a press release or media alert to local television and radio stations, online publications, newspapers and more. And we mean about more than just your grand opening. Examples include winning awards, charity events, promotions created just for locals and more.
You know how we mentioned the importance of consistent branding at the beginning of this blog? Remember, when you’re marketing out in your local community, it’s important to abide by your franchisor’s brand standards. Sometimes, franchisors require their approval before you can move forward with any custom-made marketing materials. Some franchisors even require franchisees to dedicate a portion of profits to local marketing efforts.
Purchasing an existing franchise is what’s known as a franchise resale. Many entrepreneurs are attracted to these types of sales because you can buy into the franchise for a lower price than if you were to start from scratch with the brand.
Although it’s easy to get excited to inherit someone else’s good fortune, there’s also a chance you could be welcoming their bad luck. Remember, just because you’re getting the franchise business for a better price, doesn’t mean it’s a bargain.
In some instances, the business is doing great, but the owner is retiring and none of their family members or friends want to take over. Other times, they’re looking for an out because they weren’t able to keep the business afloat on their own.
Either way, if buying an existing franchise is something you’re seriously considering, it’s important to figure out if you think the franchise business will perform well under your ownership.
Things to Consider Before Buying a Franchise Resale
Do your due diligence; get a full understanding of what the business is worth and every aspect of what you’re buying. Here’s what you need to consider before signing the agreement:
Find out why the owner is selling their franchise business.
First and foremost, you have to ask why the original owner is selling their franchise business. Is the reason feasible? Reviewing their books and sales records will give you a good idea of what to expect and what you’re working with if you decide to move forward with the sale.
Even if the numbers are bad, figure out if you have the grit and business sense to turn profits from the red to the black. If the numbers are good, you’ll get the benefit of starting a business where you can hit the ground running. Purchasing a successful existing franchise business means you’ll already have a customer base, vendor relationships, trained employees – and possibly – positive cash flow from day one.
Examine the franchise business’ employee culture.
If the employees are happy and well-trained, this will bode well for business. On the other hand, if they’re disgruntled or have a strong relationship with the current owner, you may face backlash.
If you decide to move forward with the franchise resale, your employees will be your teammates. After all, they are the ones handling day-to-day operations and dealing directly with the customers.
Analyze the current industry and demographic trends.
Ask yourself if the business can continue to survive in today’s current market and beyond. Do you think you can sell the product or service to today’s consumers? Are the demographics changing in the surrounding neighborhood in a way that could affect your business? We can’t say enough: Research. Research. Research.
Get in contact with the franchisor and establish a relationship.
After getting the information we spoke about, you should also do a deep-dive into the franchisor’s history as if you were starting from scratch. That means going through franchisee validation, examining their support and training systems, and more.
Find out if they want you to take over the existing agreement or agree to new terms. Do you need to account for additional costs, like a transfer fee or bringing the location up to current standards/branding?
Most importantly, you should ask the franchisor to confirm the information you received from the original franchise business owner. Veteran Franchise Consultant, Jeff Elgin, spoke to this in an Entrepreneur article about franchise resales, “They won’t want to do this, because they don’t want the legal liability, but they also don’t want you to join their system under false pretenses.”
Elgin goes on to say not to be surprised if the franchisor wants to see how much you’re paying for the business. All they want to know is if you have the capital and experience to succeed. If you can’t succeed, there’s no point in bringing you on as a franchisee.
Need more help on what to ask a franchisor? We wrote a blog about it here.
Ask the owner if there’s any pertinent information they may be leaving out.
This seems obvious, but if the original owner is looking to make the sale, their pitch might not have your best interest in mind. Protect yourself by being straightforward; ask if there’s anything that could affect your business that you may not know about.
A good example of this is an upcoming street closure or construction that may block customers from seeing or wanting to visit your business.
Final Thoughts Before You Go…
Your aim during a franchise resale is to own a business with proven systems for a bargain. Make sure to negotiate the sale price, and if you’re lucky, training costs, payment terms, and more.
And this may be the most important advice we give you: Consult with an experienced franchise attorney before signing a purchase agreement or any other franchise documents. Wondering why? Read our blog about the importance of hiring a franchise attorney.
There are thousands of franchise systems to choose from. It’s a big decision that can easily become overwhelming. That’s why many people turn to franchise consultants, also known as franchise brokers, who act as the middleman between you and a number of hand-selected franchisors.
Their job is to help you narrow down your choices to franchise opportunities that match your skills, preferences and goals to better ensure they’ll be worth your investment. Their services are typically free of charge because franchisors will pay them a hefty commission if their lead (you, a prospective franchisee) turns into a sale.
We know you’re excited about your entrepreneurial adventure as franchise owner. But before you start contacting the first franchise consultants who come up during a Google search, here’s what you need to know:
The First Thing You Should Do Is Identify Your Goals and Budget
What’s the secret to zeroing in on the right franchise concept for you? The answer is getting to know yourself.
Dan Martin, President and CEO of IFX, a franchise management platform, told Business News Daily, “By figuring out your actual goals, you will be able to determine what franchise is a good fit to help you meet those goals.” Once you find clarity on your personal and professional goals, it will be easier to figure out which concept works best with your lifestyle and skill set.
Your interests and skill set play a huge role in choosing a franchise opportunity. Think about the positions you’ve held in the past. What were you praised for in those positions? Those skills likely transfer to multiple industries.
Once you find clarity on your franchise business goals, you should figure out how much you’re able to invest. Franchise opportunity investment levels can range from $10,000 to upwards of $1 million or more.
Taking inventory of your capital and knowing your investment budget gives you a better sense of what opportunities are available to you. For example, it doesn’t make sense to consider a $300,000 franchise opportunity when you only have $150,000 to invest.
Find a Consultant Who’s More Interested in Your Needs Than Theirs
You know how we talked about franchise consultants getting a commission for every franchise sale they make? Well, an industry with this type of pay structure inevitably attracts people who may not have your best interest in mind.
It also doesn’t help that anyone can become a franchise consultant because the profession requires no certifications or licenses. That’s why your friends at America’s Best Franchises will help you decipher a good franchise consultant from a bad one.
Try to find a consultant with experience. That means someone who has either been a franchisee themselves or has a proven track record of success in the franchise consultant industry. Examine their portfolio and ask for testimonials to confirm they’re willing to help you find the right franchise opportunity for you.
A worthwhile franchise consultant will spend your first meeting asking you questions and listening to your goals and needs before ever trying to pitch franchise opportunities. If they’re quick to mention options without doing so or try to pressure your decision, that’s a red flag. The last thing you need is to be pressured into making a major investment that isn’t right for you. And if they don’t show enough interest in what’s important to you, find someone who does.
When you do, be sure to share all of your short- and long-term goals. The more they know about you, the easier it will be to find the perfect fit. Your franchise consultant should know distinct details about the franchises they’re showing you, from support and training to franchisee and employee culture.
Working with an experienced and reputable franchise consultant will save you tons of time and effort. The entire process typically takes between two to three months and at least 15 calls with the consultant – that’s if the franchise consultant is worth your time.
But remember, you don’t need a franchise consultant to identify the right franchise opportunity for you. You can find the perfect match using our newly and thoughtfully designed search feature with the best franchise opportunities in America. Click here to get started.
You did it! You finally found the golden franchise opportunity perfect for you. But not so fast; before you make it official, there’s one crucial thing you have to do first. That’s protect yourself legally, and the only way to do that is to hire an experienced franchise attorney.
Many prospective franchisees we’ve spoken to ask us, “Is it really necessary to hire a franchise attorney?” The answer is: Absolutely. There are more than one million lawyers in the United States but only a few thousand who specialize in franchising. Yes, corporate or business lawyers can counsel you regarding business law, but franchise-focused attorneys can offer specialized advice, based on their experience working with other franchisors and franchisees.
What Can a Franchise Lawyer Do for You?
First and foremost, a franchise lawyer will have your best interest in mind; it’s what you pay them the big bucks for (we’ll get to cost further down the blog).
The two most important documents you must to go through before making things official are the Franchise Disclosure Document (FDD) and Franchise Agreement. For a complete breakdown of every item in the FDD, click here. Most FDDs are between 150- to 200-page documents, including restrictions and rules the franchisor requires you to adhere to as a franchisee.
All FDDs and Franchise Agreements are one-sided in the franchisor’s favor, however, an experienced franchise attorney can help guide you through convoluted language, point out vague verbiage that needs further clarification from the franchisor, and possibly help you negotiate the terms of your agreement – all before you put down the money to invest.
They can also help obtain and analyze the franchisor’s competitors’ financial and qualitative data. Another plus is many franchise lawyers deal with the same companies over and over again. That means they know the inner workings of each brand and can provide insight you couldn’t get anywhere else. They can even help you draft questions to ask the franchisor, as well as current and former franchisees.
What Can a Franchise Attorney Help Negotiate?
Not everything is negotiable, but there are a few items a franchise attorney may be able to help you with, including the following:
Some franchisors automatically withdraw royalty payments from their franchisees’ accounts. This can sometimes make a particularly rough financial month even more stressful. A franchise attorney might be able to negotiate the payment schedule.
Disagreements are inevitable, especially in business. When there’s a dispute that escalates between you and your franchisor, it’s important to know how to protect yourself. A franchise attorney may be able to help you find a solution that works for both parties.
Franchise territories Many franchisors offer exclusive territories. While that may sound amazing, keep in mind franchisors define exclusive territories differently. Sometimes an exclusive franchise territory is confined to the four walls of your business. A franchise lawyer might be able to help you make sure your franchise territory is large enough to support your business.
Right to close
Although franchising means you’re working with a proven business model, it doesn’t guarantee success. If things don’t go as planned and you’re having trouble keeping afloat, you’re still required to keep your business up and running throughout the terms of your agreement. A franchise attorney can possibly help secure the right to close the business before your term ends.
The items mentioned above are not the only things a franchise attorney can help you negotiate. Remember, every contract is different. That’s why it’s important to consult with an experienced franchise lawyer.
Although some franchisors will say their terms are non-negotiable, a franchise lawyer can still help you get a full understanding of your rights, available protections and legal requirements.
Be sure to let your franchise attorney know beforehand if a franchisor says they are unwilling to negotiate. This will help you save money and the franchise lawyer’s time rewriting parts of the FDD and Franchise Agreement.
How Much Does a Franchise Lawyer Cost?
We all know legal advice isn’t cheap. Thankfully, many franchise attorneys are sole practitioners or work for boutique firms. That means they often cost less than other lawyers. It’s not uncommon for a franchise attorney to charge a flat rate for select services like reviewing an FDD or Franchise Agreement. Otherwise, you’re looking at an hourly fee, plus a retainer.
Experts say to expect to spend between $400 and upwards of $1,000. Keep in mind; if extensive rewriting and reviewing is necessary, you’ll likely pay more for it. But trust us; in the grand scheme of things and compared to your total investment, utilizing a franchise attorney could possibly save you thousands, minimize liabilities and more. It’s safe to say it’ll be money well-spent – you can’t put a price on protecting your financial investments.
The franchise space is experiencing rapid expansion. Consumer trends are shifting while technological advances are pushing franchisor boundaries – so much so, your friendly experts at America’s Best Franchises say it’s safe to expect continued growth in the franchising industry over the next few years.
In the meantime, let’s take a look at the state of franchising and why it’s such an exciting time for the industry.
The Economy Is on the Upswing
While increased wages are beginning to affect franchise business owners’ bottom line, the consequence just might be worth the reward. As the unemployment rate continues to decrease and more jobs are becoming available, consumers are becoming more confident. And more spending means more money in the franchisee and franchisor’s pockets.
Subsequently, consumers are paying off more of their debt. With less capital tied up in loans, banks will have more money to lend. Therefore, aspiring and experienced business owners will find it easier to secure funding to start or grow their business(es).
The Internet Is Changing Business Practices
The internet and rise of e-commerce present several opportunities and challenges in the franchising space. It gives the franchisor much more visibility and increases brand recognition at a speed that was once nearly impossible. It also allows franchisors to build and protect their market share by offering another way to acquire new customers and stay engaged with existing ones.
On the other hand, most franchisors prefer to maintain central control of the company website and don’t often allow franchisees to create their own sites. Unfortunately, this gives franchisors the power to sell their goods and services in their franchisees’ territories. Franchise executives say online sales help significantly increase brand recognition, while franchisees argue doing so cannibalizes the business.
So, while the internet has helped grow franchised businesses, it’s also causing a rift between franchisors and their franchisees. Either way, we’re excited to see how the internet will continue to evolve franchising as we know it.
Multi-Unit Franchising Is on the Rise
The franchise industry is seeing rapid growth in multi-unit franchising as well, and it’s a trend that won’t be going anywhere any time soon. For the first time, multi-unit franchise owners outnumber single-unit franchisees. As opposed to relying on the success of one location, multi-unit operators earn revenue from multiple franchised units.
Why? That’s because multi-unit operators are more experienced business owners who concentrate on scaling their network of locations. Multi-unit franchising provides an opportunity for tremendous growth and wealth creation for all parties involved – the brand, franchisor and franchisee.
Mergers & Acquisitions Are Becoming More Common
As the economy strengthens, we can also expect to see more and more franchisors purchasing smaller, undercapitalized franchises with poor brand recognition. Franchisors are merging with or acquiring smaller companies in a lateral or related industry. This gives them access to a new customer base, increasing their market share. It also diversifies their products and services, as well as reduces competition.
All in all, we’d say it’s a good time to be in franchising. The industry is booming and will continue progress in an upward direction. And we’re excited to be along for the ride.
If you’re considering franchising, there’s no better place to start than right here.
Planning to exit a franchise system is just as important as choosing to be part of one. While passing down your business to a loved one can strengthen your relationship, it can also be a pretty complicated process.
To make the process even more complex, most franchisors must approve your successor. William Slater Vincent, a Georgia-based attorney and professor at Life University co-authored the handbook, Franchise Succession Planning and Transfers for the International Franchise Association (IFA). In an interview with Entrepreneur, Vincent said, “ I’ve worked with franchisees from over 100 systems, and every single franchise agreement I’ve seen clearly states that if the franchise owner dies, the franchisor has to approve the successor.”
Every franchise has different requirements when it comes to succession plans. So, it’s important to know which to fulfill during the succession planning process. Remember, your franchised business is a result of years of hard work. What do you want to happen to the fruits of your labor after you’ve decided to move on?
Despite the importance of having an exit strategy in the plans, the fact of the matter is most business owners don’t even think of it until they’re close to retirement and it’s already too late. The IFA says only 30 percent of family-owned franchises make it to a second generation, while just 12 percent of second generation franchise owners pass it onto the generation after.
Let’s Talk About Options
It’s important to take a custom-designed approach that suits your needs as well as the franchisor’s. So, what are your options?
You can sell your business to one of the following:
a trusted family member or employee
an experienced broker or reseller
another franchisee or back to the franchisor
a private equity group or investment bank
Dana Telford, a consultant with Chicago-based Family Business Consulting Group, told Entrepreneur that succession planning is typically a 10- to 15-year process. Transferring ownership requires knowing your business inside and out. That means you need to analyze variables, including number of units owned, valuation per unit, transfer taxation and sale.
Now, Let’s Talk About Your Big Exit
Aiming for seamless succession? The first thing you need to do is research franchisor expectations. Find out if there are any successor training or capital requirements. Knowing what a franchisor is looking for will help you choose the right successor to take over your business.
Next, begin the search. Trust us; identifying a successor is harder than it sounds. This person needs to be passionate about your business and willing to put in the same hard work you did to grow it.
Once you choose a successor, figure out how you want to train them, including franchisor requirements. You need to teach them every aspect of successfully running your business. They should be prepared to take over even before your proposed transfer of ownership goes into play. For instance, your successor will assume ownership responsibilities if you unexpectedly get sick or just need to take a break.
Doing the proper planning ensures everyone’s goals are fulfilled – yours, your successor’s and the franchisor’s. Some franchisors even offer a succession program. Try putting together a team of legal and accounting experts to be sure all of your bases are covered when it comes to legalities and tax efficiencies.