Advice & TipsAsk an ExpertCurrent IssueJanuary/February 2024

What factors should I consider when exploring franchise ownership?

For most people, exploring franchise opportunities is the first real step toward taking control of their destiny and beginning a journey toward building a wealth-generating business. Franchising offers owners an opportunity to call their own shots, build a local team, create lasting community relationships, and discover newfound flexibility and freedom.

Before an aspiring franchisee can embark on making their dream a reality, they need to determine what types of franchised business models will put them in the best position possible to achieve their goals. While the path to awarding a franchise will be different for each franchisor, there are several key questions that any prospective franchisee should ask themselves long before getting too deep into researching franchise companies.

1. Can I afford this investment?

Investment ranges for franchises can vary based on location , equipment needs, and upfront materials and/or inventory costs. The type and number of employees the business requires at the start is also a factor in determining cost. Most franchisors share the initial investment in their marketing materials or on their franchise website. Many will also share the brand’s net worth and liquidity requirements, along with other information needed to make a financially sound decision. A good franchisor will ask you about your financial situation early in your relationship, to ensure you meet their qualifications. This isn’t the time to keep your cards close to the vest. Be open, let them know that you did your research, and have the funds needed.

2. Would I be proud to represent this brand?

Don’t shop for a franchise like a consumer would shop for a product or service! Some of the fastest growing and most profitable franchises are far from sexy, and are likely businesses you may have never thought of owning. Keep an open mind, and research a franchise like an investor. While the business itself shouldn’t be the only determining factor, an aspiring franchise owner should feel a connection with the company vibe and culture, and be comfortable with how the brand presents itself to potential customers. If there is no alignment between the brand values and yourself, that feeling is unlikely to change regardless of how much homework is done.

3. Can I truly scale this into a profitable business?

Experts agree that franchising allows people to grow a business more quickly than most would be able to on their own. You can leverage the franchisor’s successful model and skip past the costly growing pains that many independently owned businesses face. As the saying goes, revenue is vanity, but profitability is sanity. Every business model is unique, and you will want a good handle on the initial ramp-up timeline, needed working capital to get to a breakeven point, the short-term and long-term revenue potential, the necessary expenses to operate the business, and the expectations for owners to reinvest earnings to continue growing their business. Take the time to understand the mechanics of the model; you will be glad you did.

4. What are the distinct advantages and differentiators in this business?

All successful franchisors provide proven systems, processes, structured coaching, tools, and intellectual property that put their franchisees in a position to succeed. As an aspiring franchisee, you need to understand how a franchisor uniquely positions you in the market. In most cases, the service isn’t unique, but how the customer experience is managed and delivered absolutely should be. Some examples include how and where the franchisor advertises, how new customer leads are generated, how the franchisor assists franchisees in managing the customer journey to convert new sales, and how the franchisor helps its franchisees maximize repeat business to drive more revenue within the current customer base. The franchisor’s unique value proposition isn’t always apparent by simply looking at a website or reading a brochure. The answers to this type of question typically come from engaging at a deeper level with a professional representative of the company you are exploring.

5. Is this franchise something I can exit from someday?

If you were to remove a seasoned owner, and replace that individual with a competent and driven new owner, would the business continue to thrive? If the answer is no, it doesn’t mean it’s not a good business to consider, it just means it might be harder to transfer ownership someday. The end game for those who do not have family members interested in taking over the business is to have a liquidation event and exit through a franchise resale. One of the main reasons people start a franchise, outside of creating a meaningful income stream, is to make a solid return on their initial investment through a transfer of ownership. When researching a franchise opportunity, it’s wise to begin with the end in mind and determine if a healthy, profitable, and properly managed franchise is indeed sellable when you want to pursue a new opportunity or retire.

Eric Martin
Senior Vice President of Franchise Development, Happinest
ericmartin@happinest.com

Sharon Cupach
Vice President of Franchise Development, Happinest
sharoncupach@happinest.com