Small Business

Finding the Perfect Franchise Fit


READ THE TIP SHEET >

With more than 5,000 franchise opportunities available worldwide, ranging from McDonald's (MCD) to day spas to dog grooming, finding the right one for you can seem overwhelming. But the process may be more accessible than you think (see BusinessWeek.com, 04/9/06, "Own a Franchise").

First, consider your personal goals. "You not only have to understand the simple things like what kind of investment you're willing to make," says Lori Kiser-Block, vice-president for consultant services at FranChoice, a franchise consulting service based in Eden Prairie, Minn., "but what kind of risks you are willing to take, how hard you want to work, how many hours you want to work, and what kind of environment you want to work in."

For example, a Two Men and a Truck professional mover franchise requires an average of 30 to 50 hours a week, while an AlphaGraphics printing franchise is more likely to take up over 60 hours a week.

HELP AT HAND. Next take a critical look at your professional strengths. Kiser-Block advises that prospective franchisees evaluate their skills in management, sales, and customer service. Once you have a clear picture of what you want in a business and what aspects of it you can manage on your own, it's time to begin narrowing your search down and conducting investigations into several potential franchises.

While a familiar brand may be an alluring starting point in your search, you should also investigate newcomers and industry successes and trends. The International Franchise Association, a Washington, D.C.-based membership organization, and the San Diego-based American Association of Franchisees & Dealers, a national nonprofit trade group, will both provide franchise directories, annual business reviews, and guides to help you get started for free, or with payment of affordable annual dues.

The Franchise Business Review is an independent market research company that surveys the overall satisfaction of franchisees across a variety of franchises and makes reports available at no cost.

SEEKING OBJECTIVITY. Franchise consulting services, such as FranNet and FranChoice, are another free resource available to entrepreneurs. Working on a commission-based model similar to that of a real estate broker, these companies match prospective franchisees with an affiliated corporate head of a franchise, known as a franchisor.

If you decide to get the help of a franchise consultant, you should know what you're getting into. Since the franchisors pay consultants a variable rate for each match they help facilitate, their objectivity may be open to question. "[Franchise consultants] are profiting from the sale of a franchise, so they're going to recommend the franchise that's going to get them the most profit," says Eric Stites, CEO of Franchise Business Review.

Still, don't discount consultants completely. They can give you needed outside perspective. "Generally what [prospective franchisees] are looking for is a lifestyle," says Steve Rosen, president and CEO of FranNet. "They have a dream, but they have no idea how to get to the dream. So in a sense, what we're trying to do is find something that they enjoy doing, where they have the skill set and the finances to do it…."

DETECTIVE WORK. Once you have narrowed down your selection of franchises, start speaking with franchisors. The franchisor will explain the general ins and outs of running the business, and give you a Uniform Franchise Offering Circular (UFOC), the essential legal document in any franchise negotiation. Along with franchisee fees and obligations, history of past franchisees' litigation and bankruptcy filings, territorial, trademark, and other restrictions, the UFOC contains a list of contacts for their franchisees.

"A franchisor is required to give the name, address, and phone number of the franchisees that are open and operating, and of all franchisees whose franchises have terminated or transferred in the last 12 months," says Robin Day Glenn, principal attorney for the Rancho Santa Margarita, Calif.-based Franchise Law Team, a firm that primarily represents franchisors. "A prudent prospective franchisee should phone as many of those as their phone bill can bear, and if possible they should go see these people in person."

When you contact current franchisees, ask the questions which the franchisor frequently can't answer: How long does it take to bring the franchise to profitability? Has the franchisor fulfilled all the terms of his promised support? Would you buy into the same franchise again?

GET A LAWYER. In addition, consider the overall fit. "Whether you're talking to the franchisor or the franchisee, you want to make sure the culture and personality of that organization match yours," says FranChoice's Kiser-Block. You will be interacting with these people about crucial decisions on a frequent basis, particularly as you first start out, so make sure that they are committed to the same general business principles as you.

When the right franchise is in sight, experts strongly advise that you work with a lawyer who specializes in franchising. Attorney Day Glenn, who normally represents franchisors, says that this step is frequently overlooked when prospective franchisees are trying to rush into a new business.

"I would guess that at least 90% of the people who buy franchises don't hire attorneys," she says. "And even when they do, very often they have already made up their mind that they want to enter into the franchise agreement and don't pay attention to what the attorney tells them. The most important reason a prospective franchisee should consult an attorney is to decide whether or not to enter into the franchise at all."


Best LBO Ever
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus