Narrow franchise buying options
Franchise options come in all shapes and sizes. For the franchise buyer, their first two primary criteria are the amount of money they have to invest in a franchise and what particular industry group they would like to own and operate their franchise. However, there are ways to narrow franchise options and choices so let’s have a look at them.
How much to invest in a franchise
The amount of money available to invest is a function of the franchise buyer and their resources. If they don’t have all the cash to buy and start their concept, finance may be available as an SBA loan if the franchisor and the franchise is approved and part of the Franchise Registry.
This link connects with more information about what criteria a franchise buyer needs to qualify for an SBA loan.
Franchise choices of a group
Once the franchise buyer knows their finance options and industry group options the next step for the franchise buyer is to narrow down franchise choices in a group that meet their criteria.
Narrow down the franchise choices
Once the franchise investment and franchise group is clear, the reasoning becomes more tactical to find the right choice. Good items to put on a check list and work through with each franchise choice includes:
The length of time the franchisor has been in business.
Most franchises don’t immediately open their door and sell franchises. Most franchises open as a single business, develop and build their concept getting feedback from customers.
With positive feedback from the market, the business owner then goes through a long and expensive process to make sure they meet legal requirements both at a federal and state level, their marketing is in place not only to attract franchise buyers, but also the material each franchisee needs to help build the franchise brand, technology requirements are in place and accounting and other back-office processes operate successfully.
How long has the franchisor been franchising?
The amount of time the franchisor has been in business is important. Equally is the number of franchises they have sold and are operational. One of the best options available to a franchise buyer is being able to phone existing franchisees to see how they find their experience working in the franchise and being a franchisee. This option is not available when a business buyer buys an existing business.
Other franchise buyer options to review
- Item 20 of the Franchise Disclosure Document (FDD), if complete, provides the status of new and existing franchises over the last three years. High numbers of openings means confidence in the concept. Low numbers means the concept is having trouble getting established or it’s still very new and yet to gain traction.
- Item 20 also identifies the number of franchisees that were terminated, closed down and were taken over by the franchisor. High numbers means the franchise may not be headed in the right direction.
- The FDD details the financial performance of the franchise by disclosing revenue from initial franchise fees and on-going royalties. If initial franchise fees are very high and on-going royalties are very low it probably means the franchise concept is still gaining traction. If you are unsure what the numbers mean, ask the franchisor and make sure their answer makes sense to you.
- Franchisor royalty fees are critical to the success of the franchise. Make sure you understand when and how often royalty fees are paid. Like any business, franchisors need cash flow and their royalty fees. As a franchisee, you also need cash flow so if royalty fees are paid too quickly, for example, every week, it drains your cash flow and ability to be successful.
Just like in the real economy, franchises go through different stages that include starting, evolving, developing, growing and changing. Before you make your final franchise selection, understand what stage each franchise is that is on your final list and whether that stage is positive or negative to you.
If you would like more information about buying a franchise please visit my webpage Buy a franchise or buy a copy of my book: <a title=”successfully buy your franchise” href=”http://www.RogersonBusinessServices.com/andrew-rogerson/successfully-buy-your-franchise” target=_blank”>Successfully buy your franchise.
For more immediate help with buying a franchise, send an email to Andrew Rogerson or give me a call on 916 570-2674.