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The franchise is a powerful and successful business model. But it’s not as turnkey as it is infallible as some franchise sellers would have you believe.
It helps to keep a little emotional distance and even be a little against cutting the bright selling point. Ask tough questions and watch out for red flags. It’s easy for your enthusiasm to take over when you feel so close to achieving your entrepreneurial dreams. But your money, time, possibly your marriage, and maybe even your retirement savings are all there is to it. There are many great franchise checklists and buying guides, including the Employer Franchise Resource Guide:
In addition, here are three opposing questions to test your thinking and help you make a good franchise decision.
1. What is the franchisor’s reaction to my most difficult questions?
Many people explore entrepreneurship because they have just finished their current career and want to do something they are passionate about. Finding a franchise community of people who share your passion for tax preparation, hot yoga, math education, craft beer, or ax throwing can be exciting. You may find yourself navigating the discovery process in a cloud of optimism. But don’t replace one grind with another. If your passion goes beyond your business sense, you could end up with an expensive hobby instead of a thriving business.
Notice how management handles difficult questions. Does management give you direct answers? Does it mean that your sharp questions mean you lack passion or are you unfit for business? One of my favorite franchise CEOs ends each presentation day by listing the reasons why candidates should not advance. This is a great thought exercise.
One technique for detecting possible issues with the franchise model is to ask questions about the bottom of the unit’s performance bell curve. Are lower performers ruled out due to recruitment errors or difficult personalities? Not everyone can be a troubled child, especially since the corporate team approved these franchisees and territories in the first place. If a franchisee is becoming a scoundrel and is not following the system, find out why. Where is the fault? Also look for evidence of healthy franchisee-franchisor relationships, open dialogue, and a functional Franchisee Advisory Board with real influence on business management.
Speaking of passion, is the management team passionate about improving the profitability of franchisees? Does this approach to unit-level profitability guide every investment decision, marketing program, supply chain requirement, business rental, and tax rates? Find evidence and confirm it with the comments of the franchisees.
Related: 3 Reasons Why Buying a Franchise Could Be Better Than Starting Your Own Business
2. Is the franchise team more proud of selling or opening units?
The speed of sales of new franchise units is often highlighted in franchise listings and ads as a sign of the franchise’s appeal. Hurry up before your market runs out! This is a sold out theater. Getting the units open and then profitable is much more important.
Strong franchises have the new process of forming and opening the place to a science. They open 100% of the licenses they sell. These units increase rapidly and work as expected. Weak concepts leave new franchisees abandoned in the purgatory of startups. Franchisees struggle to open up and increase adequate cash flow, causing exhaustion. If multiple packages were sold, development agreements could be silently canceled later, as franchisees lose enthusiasm and fail.
Ask a lot of questions about the new website history and the franchisor support team. Interview as many recent franchisees as possible. What support did they receive? Was the training adequate? Was the company sensitive? Were there any surprises? Were the cost estimates accurate? How difficult is it to achieve balance? How fast is the return on investment? How difficult and expensive is it to find new customers? What would they like to know? What would they have done differently?
Related: 9 Ways to Create a Solid Franchise Community …
3. What are the underlying motives of influencers?
In search of a solid franchise system with a sustainable competitive advantage and healthy foundations at the unit level, you will go through a large field of influencers. This is especially true for first-time franchisees who may struggle to distill thousands of franchise brands into a manageable stretch of options.
Be an opponent here too, and really dig. Ask anyone who recommends a franchise how they are paid. Have they been franchised themselves? What training have they received? How do brands get to your list of recommendations? Is it paid to play? Can you talk to the franchisees they have worked with in the past? If you use “best” lists for veterinary brands, make sure you understand the selection criteria.
The best recommendations come from the franchisees themselves. But even here, keep a healthy skepticism. There are non-monetary incentives for franchisees to engage in hiring beyond brand protection. Franchise animators enjoy relationship benefits with the franchisor. On the other hand, franchisees whose frankness or outright unhappiness tends to kill new licensing agreements may end up marginalized or they may find themselves receiving special attention from the corporate audit team. Each franchise sales team has a pulse on which franchisees are good validators and which ones will derail offers. Try talking to a wide range of owners and ask for referrals from other franchisees who may have a different point of view. You want to talk to lower-level interpreters to find out what’s going on there as well.
Check franchisee satisfaction messages with the number of franchisees renewing their licenses or adding placements. It’s a good sign that existing owners are expanding. Being inside, they know all the dirt, but they reinvested anyway!
Be a determined detective. Don’t let your passion and excitement distract you from worrying signals or tempt you to take research shortcuts. Every difficult and opposite love question you ask is an investment in the success of your franchise. And it’s worth it.
Related: 6 Risk Factors to Consider Before Buying a Franchise