Even though you may hear reports of franchises closing in the media, the fact is that from 1971–1997, less than 5% of franchise businesses closed each year. A study conducted by the U.S. chamber of commerce found that 95% of franchises are still in business after 5 years, compared to just 47% of self-launching businesses. Buying a franchise more than doubles your chances to survive as a business owner, and by choosing the right franchise your likelihood for success can be greatly improved. So how do you choose the right franchise for you? Do you jump on the latest and fastest growing hot trends, or do you go with an older more established company everyone knows and that has a strong brand identity? Would you rather stay in your comfort zone and do something in a field you are more familiar with? Do you want a big business, small business, home based, or the chance to have multiple locations? What is the size of the market and how strong is the franchisor? The truth is, the reason most franchisors are successful comes down to just several things. First, the business model has proven to be successful and profitable and has the history and data to prove it is sustainable and not just a fad. Next, the franchisor is always striving to provide its franchisees with the best possible business tools to support them in all areas of the franchise business.
The strongest franchise companies will take the time and money to reinvest in supporting their franchisees and develop ways to open communication and listen to their community. A good franchisor will make decisions that benefit all its franchisees equally, greatly increasing your chances for success. So back to the question, should you jump on the hot new franchise concept or not? Do so only if you believe and can prove it is sustainable and the franchisor has the support systems in place to help you while building a strong brand.
Sometimes, new franchisors cannot grow or react fast enough to support their rapidly growing network. It takes a great deal of time and a good management team to create, develop and implement new, strong systems and establish a positive brand image all at once. However, if you are one of the first franchises and the brand explodes, the equity and value of your franchise could be huge in the future. Do your research carefully on new franchise concepts and talk to as many existing franchise owners as possible asking for their candid opinion on how the franchisor is handling their growth. More established franchise companies should look and feel like well-oiled machines and provide you the greatest chance for success, but often times it is hard to find good new locations and territories when the brand has been around for a while. Established franchise concepts can also be considerably more expensive because the brand has grown and become more valuable.
Do you want to stay in your comfort zone? If the franchise culture doesn’t mesh with your personality, then your chance of success could be greatly reduced. If it requires a certain skill set like a strong sales background, and you don’t enjoy sales, don’t do it. If you are already trained in or are familiar with the franchise concept you are looking at, all the better. The franchisor will then just need to train you on their systems and culture and give you the tools to market and manage your business. No matter if you wish to have a small, home based franchise or a larger more established franchise, the process is the same. Do your homework; there is a saying in franchising— when you buy a franchise, you are in business for yourself but not by yourself.
Before buying any franchise, a visit to the corporate office for a discovery day to meet all the different departments you should have at your disposal, is a must. Initially, you will incur the cost of a licensing fee which gives you the right to learn the systems, use the name, logos and intellectual properties developed by the franchisor and provide you with extensive training on the model and its systems. On an ongoing basis, you may also be paying a royalty fee back to the company to help support you and your franchise business. Always know what support is available to you and use it. That is what your royalties are for.
So if you think you can own a franchise and have control over the offer, message, pricing, look, and logos then franchising is not for you.
With over 5,000 different franchises to choose from, you can take your time. You should never purchase a franchise you’re not certain about and the decision should be yours alone and never left to a salesperson or broker. I truly believe that buying a franchise is a wonderful way for first time business owners to learn many of the basic business skills they can use the rest of their lives. Marketing, accounting, time management, information technology, vendor relations, real estate, the list goes on. For those who are more experienced, many franchise companies have area or regional developers who represent and support a group of franchisees in a certain geographical area. Regional developers are franchisees who buy the right to sell, develop and oversee a defined geographic area and must be well-trained on the model and operating systems. They not only represent the franchisor’s interest, but also the franchisee’s.
I believe that franchising definitely gives you the greatest chance for success, but I also know that franchising isn’t for everyone. Franchisors must protect their brand identity, story and image at all costs. So if you think you can own a franchise and have control over the offer, message, pricing, look, and logos then franchising is not for you. Franchising encourages entrepreneurial spirit but only to a point. A good franchisor will not allow franchisees to do their own thing as it will ultimately dilute the value of the brand for all who have invested in it. A good franchisor will have a feedback system already in place so they can listen and learn from their franchising community. This may include a franchise advisory board, focus group, steering committees, annual conferences and a help desk. Take your time, make the calls, visit the locations, ask for the latest up to date franchise disclosure document (FDD) that every franchisor is required to provide you and don’t forget to make that trip to visit the corporate office. The FDD will provide you with all the legal information about the franchisor. Franchisors are legally required to update their FDD each year with a current list of open, closed, and transferred franchises as well as a corporate audited financial statement required by the U.S. Security and Exchange Commission (SEC). The FDD will also contain estimated opening costs and in some cases earning claims for the average franchise and the highest and lowest producing units.
Finally, if you have made the decision that a franchise is a good fit for you, have a qualified franchise attorney review the FDD as well as the franchise agreement to be certain you understand every fee you will be required to pay as well as your obligation to the franchise and the franchisor’s obligation to you. Owning a franchise can be a wonderful partnership with the right franchisor and create great relationships with your fellow franchise owners, with whom you share a common bond. In addition to making a good living, you can build value and equity in your business enabling you to someday sell it or pass it down. Just do your homework and enjoy the experience— it could reward you for a lifetime! John Leonesio is a recognized expert in the health, wellness and franchise industry. He is the CEO of The Joint…the chiropractic place . He co-founded Scandinavian Health Spas, growing it from one club to 40 clubs. In 1990, he founded The Q, the Sports Club, growing it to 20 units before selling to 24 Hour Fitness. In 2002, Leonesio founded Massage Envy. In just 6 years, he took it from concept to a $300 million operation with more than 800 licenses awarded.