Selecting a Franchise: 5 Tips from a Former Franchisee Turned Franchisor

by Thomas Scott, Showhomes

I've been a franchisee and have bought and run a franchise company and here are the 5 tips I share with our candidates. Love to hear your feedback on what else belongs on this list:

1. Profitability is huge. Businesses that are profitable stay open and thrive; businesses that lack profitability fail. Period. Better to have a business with lower overall sales and higher profit margins than one with higher sales and little or no profit. In franchising, most reputable companies issue an 'item 19' - a section of the FTC required Franchise Disclosure Document (FDD) that entails the earnings claims. My advice: don't buy a franchise from a company that doesn't have one! While an item 19 is really important, it may not tell the whole or real story. Not having an item 19 does not mean they are unprofitable, it just raises a red flag that the franchisor isn't organized and lacks transparency. If they don't have one, make sure to ask why. For the real story you have to go straight from the actual franchisees who will tell you point blank if they are really making money or not which brings me to #2:

2. Are actual franchisees really happy in the system? Would they buy again? In an honest moment, how would they rank their franchisor? Franchising is an elegant business model and in the best of worlds, the franchisor's goals are aligned with the franchisees. That is, the franchisor makes money if the franchisee does well. What real franchisees say to candidates considering buying a franchise is the 2nd most important factor. If they say good things, its a less risky buy and if they don't say good things, sales of new franchise units grind to a halt. The Franchise business review posts independent franchisee satisfaction surveys that are quickly becoming the best public tool for candidates to use. Most good companies will let you talk to franchisees if you fill out a full application and a non-compete. Talk to top performers, talk to under-performers and talk to a few in the middle. Most candidates only want to talk to top performers because face it, we all wake up in the morning and want to be a top performer. That's what it means to be entrepreneurial. Entrepreneurs don't wake up and say 'I want to under-perform today."

3. How well is the system documented? I wrote a guest blog about this recently: http://franchisebusinessreview.com/content/Selecting-a-Franchise-How-well-is-the-system-documented - Following the franchise system is the quickest path to success and not following the system is the leading cause of failure. I've read studies that show 60% of the performance of a franchise is the system and 40% the franchise owner's strengths or weaknesses (think this came from a Greg Nathan book). Good documentation is crucial to running a tight ship.

4. How sharp is the marketing? It is a quickly changing world today and does this system really focus on cost effective ways to build brand nationally and locally? Are they really using social media to drive business and can they even articulate a social media strategy? An otherwise great model can wilt without these! Do you have a website or do you have to use the national site? What about national and local PR? Blogs? Can they walk you through how they use marketing tools to acquire and retain customers?

5. The last is the most important of all: fit. Is this business a good fit for you? Does this company use personality tests and benchmark your results against those of top performers so you see how you stack up? Do you have the right skills to succeed? If this is a service based or sales business, can you see yourself doing sales 24 /7? I've yet to see a franchise that didn't require hustle and working hard in a corporate job is often VERY different than hustling in a small business. Do you sync with the other franchisees and can you see yourself in their culture. For that matter, can you even identify the company culture?

What's your advice to candidates?

Thomas Scott
VP Marketing and Systems Development
Showhomes Home Staging

www.showhomesfranchise.com
 

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