CHOOSING THE RIGHT FRANCHISOR
Franchising
"Dear Mr. Franchise,
I decided that I want to be in Franchising but I don’t know how to evaluate the Franchisor. How do I choose a Franchisor that is right for me?”
Choosing a franchisor is one of the most important decisions you have to make if you’re interested in becoming a franchisee. You are not just being granted a franchise, you are becoming a partner in a network of businesses supervised and managed by a franchisor. It’s a big commitment you’re making with your money, so take your time before making up your mind, and remember, as the investor... you are in the driver’s seat.
The franchisor is your business partner because you share your revenue with them. In most franchise scenarios this is called a Royalty and Advertising Fee. It’s usually a percentage-based fee and comes off of gross sales which your franchisor is helping you grow, notably through its support in Marketing and Operations.
Why? Because the franchisors have experience in setting up replicable businesses that, given the same relative set of circumstances, can repeat the same relative level of success. As of now, you probably wake up every morning, look in the mirror and realize, "I am full of unbelievable potential... at work I am underutilized every day and if I was working for myself I’d be able to achieve so much more.” This is a very common feeling among new franchisees. By taking control of your destiny and joining a franchise community you truly can capitalize on your potential. Your franchisor can be a huge benefit in supporting your goals if they are dedicated to building a great organization.
A FEW STARTING TIPS
Great franchisors are found in every industry. From Food Service to Business Support, from Lawn Care to Electronics, the same principles apply. Something you may want to consider first is the stage of development the organization as reached. Joining a young franchise for instance means having probably a greater selection of locations. More mature systems may have saturated marketplaces.
Also, when some franchisors realize their market is saturated, they decide not to add more locations in a territory. Other may encourage on the contrary a free competition between fellow franchisees. This practice, called cannibalization of the brand, can be problematic.
You will want to know who picks the location and how close you’ll be to other stores. If your franchisor does not assist with the site selection, make sure you know the selection criteria up-front. A great franchisor helps with this aspect as it’s not your area of expertise.
Timing may also be important. If you’d like to be open immediately, then buying a new franchise may not be a solution. It can take from 3 months to 3 years to open a new location. This should be discussed from the start.
The alternative of buying an existing franchise (commonly known as re-sale), in order to get yourself up and running faster, is a tricky one. Retain an accountant to accurately determine the businesses value and help you make the decision. A great franchisor will NOT get actively involved in this evaluation process to avoid a conflict of interest with yourself and the reseller.
Deciding on a franchisor also means sharing his vision for success. For some people success equals money, for others it’s work-life balance, and many more definitions exist. Make sure you’re aligned with the head office on this, otherwise you’re setting yourself up for hardships down the road.
EVALUATION CHECKLIST
Once you’ve narrowed your choice down to an interesting franchisor, the next question is how to evaluate them. Here are the top five things to do:
1. SPEAK TO THE FRANCHISEES
Speak with people running businesses in the franchisor’s system today and ask them what it’s like. Find out if they’re happy with the support they receive. Inquire on financial expectations. Most importantly, ask them if they would do it over again. The franchisees should be forthcoming with this information and it will help your decision-making.
2. EVALUATE THE HEAD OFFICE FINANCIAL STATEMENTS
Head Office Financial Statements should be readily available. Take them to an accountant and ask one key question, "Does the franchisor make more money off royalties or selling franchises?” If they make more money on royalties, then they’ll always be motivated to help the franchisee succeed. But if it’s the contrary, you should address this issue and ask the franchisor why it’s the case.
3. READ THE FRANCHISE AGREEMENT
It should be mandatory prior to signing. These are the rules and obligations you are agreeing to by entering the franchise. If parts of the agreement don’t make sense, you should make notes on the agreement and ask a lawyer and/or the franchisor to clarify this for you.
4. MEET THE PRESIDENT
Shaking hands with the person who runs the whole business and deciding whether or not you want to invest your money in them is crucial. At the end of the day, your franchise system is in their hands. And if you’re ever in need of assistance, the President is the person that will have the ability to give it to you. Finding him/her trustworthy will give you a great deal of peace of mind before and once your business is open.
5. MEET THE HEAD OFFICE TEAM
That team of people is there to support you and your location. Meeting them in advance and knowing their roles will help you build your business even faster. It will also let you know if the office has the support network you feel is needed.
Good luck in choosing a Franchisor that is right for you!
I decided that I want to be in Franchising but I don’t know how to evaluate the Franchisor. How do I choose a Franchisor that is right for me?”
Choosing a franchisor is one of the most important decisions you have to make if you’re interested in becoming a franchisee. You are not just being granted a franchise, you are becoming a partner in a network of businesses supervised and managed by a franchisor. It’s a big commitment you’re making with your money, so take your time before making up your mind, and remember, as the investor... you are in the driver’s seat.
The franchisor is your business partner because you share your revenue with them. In most franchise scenarios this is called a Royalty and Advertising Fee. It’s usually a percentage-based fee and comes off of gross sales which your franchisor is helping you grow, notably through its support in Marketing and Operations.
Why? Because the franchisors have experience in setting up replicable businesses that, given the same relative set of circumstances, can repeat the same relative level of success. As of now, you probably wake up every morning, look in the mirror and realize, "I am full of unbelievable potential... at work I am underutilized every day and if I was working for myself I’d be able to achieve so much more.” This is a very common feeling among new franchisees. By taking control of your destiny and joining a franchise community you truly can capitalize on your potential. Your franchisor can be a huge benefit in supporting your goals if they are dedicated to building a great organization.
A FEW STARTING TIPS
Great franchisors are found in every industry. From Food Service to Business Support, from Lawn Care to Electronics, the same principles apply. Something you may want to consider first is the stage of development the organization as reached. Joining a young franchise for instance means having probably a greater selection of locations. More mature systems may have saturated marketplaces.
Also, when some franchisors realize their market is saturated, they decide not to add more locations in a territory. Other may encourage on the contrary a free competition between fellow franchisees. This practice, called cannibalization of the brand, can be problematic.
You will want to know who picks the location and how close you’ll be to other stores. If your franchisor does not assist with the site selection, make sure you know the selection criteria up-front. A great franchisor helps with this aspect as it’s not your area of expertise.
Timing may also be important. If you’d like to be open immediately, then buying a new franchise may not be a solution. It can take from 3 months to 3 years to open a new location. This should be discussed from the start.
The alternative of buying an existing franchise (commonly known as re-sale), in order to get yourself up and running faster, is a tricky one. Retain an accountant to accurately determine the businesses value and help you make the decision. A great franchisor will NOT get actively involved in this evaluation process to avoid a conflict of interest with yourself and the reseller.
Deciding on a franchisor also means sharing his vision for success. For some people success equals money, for others it’s work-life balance, and many more definitions exist. Make sure you’re aligned with the head office on this, otherwise you’re setting yourself up for hardships down the road.
EVALUATION CHECKLIST
Once you’ve narrowed your choice down to an interesting franchisor, the next question is how to evaluate them. Here are the top five things to do:
1. SPEAK TO THE FRANCHISEES
Speak with people running businesses in the franchisor’s system today and ask them what it’s like. Find out if they’re happy with the support they receive. Inquire on financial expectations. Most importantly, ask them if they would do it over again. The franchisees should be forthcoming with this information and it will help your decision-making.
2. EVALUATE THE HEAD OFFICE FINANCIAL STATEMENTS
Head Office Financial Statements should be readily available. Take them to an accountant and ask one key question, "Does the franchisor make more money off royalties or selling franchises?” If they make more money on royalties, then they’ll always be motivated to help the franchisee succeed. But if it’s the contrary, you should address this issue and ask the franchisor why it’s the case.
3. READ THE FRANCHISE AGREEMENT
It should be mandatory prior to signing. These are the rules and obligations you are agreeing to by entering the franchise. If parts of the agreement don’t make sense, you should make notes on the agreement and ask a lawyer and/or the franchisor to clarify this for you.
4. MEET THE PRESIDENT
Shaking hands with the person who runs the whole business and deciding whether or not you want to invest your money in them is crucial. At the end of the day, your franchise system is in their hands. And if you’re ever in need of assistance, the President is the person that will have the ability to give it to you. Finding him/her trustworthy will give you a great deal of peace of mind before and once your business is open.
5. MEET THE HEAD OFFICE TEAM
That team of people is there to support you and your location. Meeting them in advance and knowing their roles will help you build your business even faster. It will also let you know if the office has the support network you feel is needed.
Good luck in choosing a Franchisor that is right for you!