Thinking About a Franchise? Do Your Homework Before Going All In.

Owning your own business is a dream many people have. The freedom to be your own boss and to control your own destiny is a strong lure, especially in our ever-changing business environment where loyalty and commitment seem to be a thing of the past.

There are many reasons you may want to step out on your own and leave the comfort and safety that being an employee offers. You may be following a dream. You may be frustrated with the direction your career has taken you. Your values and the values of your employer may not align. You may simply be sick of growing someone else’s business and believe you can do it for yourself.

No matter the reason, franchise ownership may be something you are considering as you pursue entrepreneurship as a lifestyle and career path. One of the draws of a franchise, as opposed to starting from scratch, is that you don’t have to go it alone. A good franchise opportunity will be as close to a turn-key business opportunity as you may find. Plus, you ‘ll get the support of the franchisor and franchisees who have been there and done what you are about to do.

Consider This…

If you are contemplating stepping out on your own and investing in a franchise, consider the following before signing on the dotted line. Remember, it’s better to go slow before you go all in. If you slow the process down, you may feel as if things are not moving as quickly as you hoped. However, controlling emotion around such an investment and going slow so you can go fast later is almost never a bad idea.

10 Things You Need to Understand About the Franchise Business

1. Product offering and the target customer: Ask the franchisor to describe their products in detail, who they view as their target customer, and what, if any, product offerings are in development.

2. The “ideal” demographic: Ask the franchisor to share the ideal demographics for a successful location. If they can’t give that to you then you should be concerned. However, you do not want to solely rely on one opinion, as customer preferences change over time. Do your own research. Start by visiting franchise locations that are in markets similar to the one you are considering for your business opportunity. Conduct interviews of owners and general managers so that you might uncover the ideal demographic at that moment in time. If the franchisor does have the data, ask how they arrived at the data, when the data was developed, and how the current customer list compares to the data.

3. Development area demographics: Ask the franchisor if they will help you determine the demographics of the geographic area you are interested and help you determine the size and density of the target population around the area you plan to place your business.

4. Operating costs: Ask the franchisor if they can help you determine the rent, payroll, and supply/material costs for the market you are considering and compare that with anticipated pricing for your product. Ask for a sample pro forma so that you can try to determine margins using data for your area. No two markets are the same, even if they are only 30 minutes apart. Opening a location in the Highland Park neighborhood in Dallas is much different than opening in up and coming markets, such as McKinney. Excessively high rent and payroll costs can destroy a franchise when they are most vulnerable, which is at startup. Once you have this information, interview other franchisees to find out how they are performing. You need to confirm the business potential. DO NOT let your emotions make this decision.

5. Support: Ask about all the services and support you will receive from the franchisor. Much of this information is contained in the Franchise Disclosure Document. However, asking the right questions will provide greater detail and a better understanding. Doing so will better prepare you for opening and prevent misunderstandings in the future. Ask about the leadership team, their experience developing locations, and their plan for future development and support. The leadership team matters as much as anything. Do not pass over this.

6. The best of the best: Ask for a detailed description of the characteristics and behaviors of the most successful franchises. There are things that the best franchises religiously do that the less successful franchises do not. Find out what they are and then map a plan for making those characteristics a part of your franchise. Interview those franchisees. Visit their businesses.

7. 5-7 things: Ask the franchisor what 5-7 things have been determined to be those things that result in increased revenue and customer satisfaction. You may hear things like "engaging the customer when they walk through the door", "addressing customers by their first name at checkout", “offering concierge service by walking around the reception desk to greet them as they enter”, “taking the time to understand their needs and concerns and then mapping a plan to address their concerns”, “cross promoting services and products”, "offering to enroll customers in our rewards program", etc. Knowing those 5-7 things says a lot about the franchisor and how well they know their operations and customer.

8. Marketing (yours and theirs) – Ask the franchisor to explain the franchisor’s marketing program and how that compares to the marketing responsibility of the franchisee. Know where the franchisor will spend marketing dollars and where you need to spend money locally. A satellite franchise may realize little to no corporate marketing until other locations are developed nearby. You need to know this up front.

9. Their opinion: Ask the franchisor for their opinion about where they would locate a franchise and why. If different, maybe you’ll find that their location is better than yours. It also tells you how much work they've done preparing for growth. It also says a lot about the direction they are heading.

10. Strategic vision: Find out the strategic vision of the franchisor. Ask about their vision, values, goals, growth plans, product development plans, and mission statement. Quality organizations will have a well thought and detailed strategy that maps out the direction of the organization. A vibrant corporate brand will only help make your local brand more attractive.

Know It All

You can’t learn everything you need to know in a few meetings. However, by asking the right questions you can learn a lot about the franchisor and what you can expect in the future. Remember, the benefit of owning a franchise is that someone else has figured out the success formula.

While franchise ownership does not guarantee success, if you do your due diligence and implement their systems you should be better positioned than trying to go it alone. Never forget that your success or failure is directly tied to your willingness do what needs to be done to make it happen. Due diligence is the first step in that process. Propper due diligence includes a professional review of the Franchise Disclosure Document, understanding the systems and processes that the franchisor has established, knowing the success factors that contribute to franchise location success, identifying the ideal customer, etc.

Randy Stepp is a Principal with Renaissance Leadership Group. RLG is a full-service business and franchise development company whose purpose is to help business owners realize their dreams of independence and freedom.

Visit Renaissance Leadership Group at www.renaissanceleadershipgroup.com to learn more about business development