How do I Find the Right Franchise for Me?

A Guide to Researching Franchise Opportunities

By Bob Seay

Going into business is one of the most important decisions most people will make in their lifetime, somewhere between buying a house and choosing a mate. The cost of a franchise, including overhead, can run into the hundreds of thousands or even millions of dollars. With so much at stake, it pays to do your homework. Investing time and patience in the beginning can save you frustration and money in the future.

Four things to consider when selecting a franchise:

1. Decide what you want to do. You will be spending a lot of time working in your new business. It helps if you are doing something you enjoy.
2. Decide what type of franchisor is right for you. Try to match your personality to the corporate personality of the franchiser.
3. Develop an entrance plan to get into the franchise and an exit plan for leaving. Do not get into a franchise without an exit plan.
4. Evaluate and compare franchise opportunities before you buy. Your decision should be based on what you decided in items 1, 2, and 3 above, along with other financial and personal considerations.

Decide what you want to do

Buying a Franchise? Use our nationally-trusted free service to compare, evaluate, and get the input you need to make an educated decision... find a franchise that's right for you and your family. Request a Private Consultation

The success of your franchise depends on several things, including the product or service you offer, location, economic environment, and other factors. One of the most important considerations - and one of the most often overlooked - is how interested you are in this type of work.

"Research has shown that individuals who work in fields of high interest to them are more satisfied and productive in their jobs than those who work in fields that do not interest them," says Wilma Fellman, a licensed counselor who works with business professionals. This might sound like common sense, until you think about how many people end up in careers or businesses that they don't particularly enjoy. Identifying your field of interest is the first step in finding a franchise that will work for you. It's not enough to say, "I want to run a business." You have to know what kind of business you want to run. Sara owns a McDonald's franchise. Bill owns a Heaven's Best Carpet Cleaning franchise. Both of them are running their own business, but their lives couldn't be more different.

One all-too-common mistake of first-time franchise owners is to view their franchise only as an investment opportunity. Your franchise is an investment, but it will also probably be your job. Successful franchise owners are able to turn a job they love into a rewarding career and a profitable investment.

Things to think about:

• Do you have any special skills or strengths? What kind of business would best utilize these abilities?
• What are your favorite activities? Which jobs have been your favorites?
• If you could do something without being paid for it, what would it be?

Decide what type franchisor is right for you

The entire purpose of a franchise is to produce a recognizable product and brand. For example, you can be reasonably sure that a Subway Sandwich is going to look and taste the same whether you eat it in Dallas, Denver, or Small Town U.S.A. Franchises also reflect the personality of the company. Successful franchise owners are those that have found a company that is a good match for their personality.

• What would your ideal day look like?
• Do you want to wear a suit, or do you want to work in a more casual environment?
• Are you comfortable with sales, or would you prefer a business where the customers come to you?
• Do you like regular hours, or do you want a business that you can do any time?
• Is this franchise compatible with your personal goals, family relationships, and lifestyle?

Home-based v. Traditional Store?
As a franchise owner, you can choose whether you want to work in a business with a traditional storefront or in a home based business. Comfort Keepers, which offers in-home care for senior citizens, is one of many home based franchise opportunities listed in Entrepreneur's 2004 Buyer's Guide. Other franchises require a specific style of building and location as part of the franchise agreement.

Develop an entrance plan for getting into the franchise and an exit plan to leave.

An entrance plan is not the same as a business plan, which is much more specific and more detailed. The goal of the entrance plan is to chart a course for getting into business. You can develop parts of your entrance plan on your own. Other parts will required the help of experts. Avoid the temptation to do everything yourself. The American Association of Franchisees and Dealers recommends budgeting 2-5% of your total investment for a competent "success team" to guide you through the selection process. Your team should include an experienced franchise attorney and a financial advisor who understands franchised businesses.

Your entrance plan should include the following elements:

• A plan for researching and eventually selecting an appropriate franchise.
• A timeline for making decisions.
• A plan to meeting your financial obligations during the search and until your new business can start making money.

Develop an exit plan before you start!
What's the second thing they tell you on an airplane, right after they tell you to adjust your own mask first? "Locate the nearest exit." You wouldn't get on an airplane unless you were reasonably sure you were going to be able to get off the plane. The same is true in business. No one likes to think that their new business might not succeed. You want things to work out. You also want to be able to survive in case they don't.

Besides, there are many reasons for leaving a business other than business failure. You may wish to try something different or decide to retire and enjoy your fortunes. Either way, you need to know what you are going to do with the business. Can you sell some parts of the business and keep others? Can anyone run this business? Who might be interested in buying it? Finally, how can you recoup your investment?

Focus on your entry strategy, but be aware of the exits.

Evaluate and compare franchise opportunities before you buy.

Once you have decided what type of business you want to have, you can start looking into franchises that are right for you.

The Federal Trade Commission (FTC) requires franchisors to provide prospective franchisees with a detailed statement, called the uniform franchise offering circular (UFOC). In addition to basic information about the company, the UFOC must also include:

• The franchisor's financial information
• Detailed information on the number of franchises, their failure rate (how many franchisees went out of business), and their termination rate (termination occurs when a franchisor buys back the franchise from the franchisee, usually to prevent a failure.)
• A history of any bankruptcies or litigation against the company

The UFOC also includes information about franchise operations, including:

• The franchise fee
• Any ongoing fees, royalties, or other payments that must be paid by the franchisee
• An itemized list of goods and services that must be purchased from the franchisor
• Information on the renewal, cancellation, and termination of the franchise

Some states also have their own laws that apply to franchises. Most of these laws are designed to protect the franchisor. However, some laws have been put in place to ensure that franchisees receive the information they need to make an informed decision.

A franchise is a partnership between the franchisee (you) and the franchisor (the company). Look for the same things in a franchisee that you would look for in any mutually beneficially partnership. The Association of Small Business Development Centers (ASBDC) points out several things that a potential franchisee should expect from a franchisor.

• A company that is committed to franchising
  Some companies see their franchise operations as only one part of their overall business plan. Franchisees may find themselves competing against stores owned and operated by the company. In most cases, this is a no win situation for the franchisee.



• A strong history of performance
  This information is included in the UFOC. How many failed or terminated franchises has this company had? Is the company meeting the expectation of investors?



• Strong name recognition and / or excellent growth opportunities
  One of the reasons for buying a franchise is to purchase a recognizable brand. Otherwise, you might as well open a business from scratch. Ask around about the franchise you are considering. If no one has ever heard of it, then you might want to reconsider.
  
  One part of strong name recognition includes the company's reputation. Is the company name associated with a good product and strong ethics? How happy are their franchise owners about working with this company?



• A fair franchise agreement
  Franchisers spend millions of dollars in legal fees to craft an agreement that, frankly, usually favors them. It would behoove you to spend a few hundred dollars on a knowledgeable franchise attorney to go over the franchise agreement on your behalf and to make sure it is fair to you before you sign it.



• Answers to questions before you buy
  If the company is reluctant to answer questions before you buy, then they are probably not going to be very forthcoming with answers once you have given them your money. While there may be some confidential items that they cannot discuss for legal reasons, the franchisor should be able to answer most of your questions. In return, you may be required to sign a non-disclosure agreement (NDA).



• How selective is the franchisor?
  Companies that are serious about franchising are highly selective about who they will let into the club. Companies that have a "we'll take anybody!" attitude may seem friendly, but they are usually not very successful.

Do not limit your research to reading. Visit several franchise locations. Ask employees and franchise owners how they like the franchise. Visit the company's home office to see how the well things are run and to meet the people who will be working with you to help you build your business.

Investing time in the planning stages can save you a lot of time, money, and heartache once you're in business.

Franchise Information and Resources

• Franchise Opportunities
• Become the Next Successful Franchisee