Thinking of Buying a Franchise? Start With These Five Critical Steps

By Gary M. Remer

The allure of being your own boss is hard to resist. Charting your own course, running the show, and controlling your future are all part of the appeal that leads so many Americans every year to ditch the golden handcuffs of a steady and regular paycheck in exchange for the exciting and limitless possibilities and opportunities that come with starting your own business. 

Of course, every opportunity comes with corresponding risks. That is why a clearheaded, thoughtful approach is essential before leaping into the entrepreneurial unknown. This is particularly true if you are considering buying into a franchise as a path to economic and career independence.

The franchise path is indeed an attractive one, as reflected in an estimated 806,270 franchise establishments in the United States, the vast majority of which are owned by individual franchisees. If you have a basic understanding of what it means (and doesn’t mean) to purchase and own a franchise and want to continue exploring the possibility, here are five critical steps you should take before going any further. 

1. Look in the Mirror

The opening step entails evaluating what you seek in this next stage of life and business. You must be interested in running your own business rather than just being interested in doing something other than what you are doing now. If the entrepreneur in you does not get excited about this prospect, franchising is not for you. However, if the thought of owning your own business gets your juices flowing, even with all of its potential ups and downs, then you have the basic desire essential for a successful franchising endeavor. 

Once your self-reflection confirms your entrepreneurial mindset, I recommend you take a personal inventory of your skills and interests, tally your strengths and weaknesses, and honestly assess your personality and preferences. On this last point, perhaps the most important thing to reflect on before entering into a franchise system is whether you are willing to follow somebody else’s system and rules. 

A proven system/formula is the benchmark of any good franchise concept. Franchisors want to work with you to make your franchise a success, but as a trade-off, you must stay within their system. The idea is to ensure that every product or service each franchise offers is the same across the country. This is necessary to protect the reputation of the system for every franchisee. Absent uniformity, the franchise process does not function.  

A story will emphasize this point about being willing to work within someone else’s system.

A franchise consultant once told me about his successful entrepreneur friend who opened several thriving independent businesses. This business owner came to the consultant and said, “I want to buy into this franchise system I read about because I love the idea of what they’re offering.”  

The consultant refused to represent the business owner. When asked why, the consultant responded, “You are used to being in control and will always believe that you can do it better than the existing system.” Ignoring this advice, the business owner went on to purchase a franchise. Within two years, he was in litigation with the franchisor. Following someone else’s rules was not an identified strength of this person. If that characterization applies to you, a franchise is likely not for you.

2. Explore Various Franchise Opportunities, Financing Options, and Time Commitments

You could buy into countless franchises in a wide range of industries, from hospitality to education to oil changes. Make sure the franchise is a good fit for you, both personally and financially. If you have a particular interest in or passion for food, a restaurant franchise may be a better choice than something you inherently care little about.

Since every franchisee must make a significant upfront and ongoing commitment of time and money, determine how much of each you can invest. When making an investment, remember you should maintain cash reserves (money in the bank) equal to three to six months of your living expenses. This is no easy task in today’s financial environment.

Investigate and assess the different sources for initial financing. You can use your savings, apply for a Small Business Administration loan, finance through retirement plans, or take on a business partner. Many franchisors also have special incentive programs for veterans and minorities.  

Buying an existing location is also something to consider. A retiring franchisee may provide an opportunity to acquire a business with a proven track record. By purchasing an existing franchise, you eliminate the uncertainty of start-up costs and will benefit from the franchise system. 

Once set on the financing side, you will need to evaluate how much of your time will be necessary to build this business. Some franchisors specify the hours the franchise must be open and have a rule that an owner or manager be on site during those hours.  

3. Identify Potential Franchisors

Once you are ready to proceed further, it’s time to examine your options for franchising systems more closely and granularly. This is perhaps the most critical stage.  

Where do you begin? You can contact a franchisor directly, usually through its website, or reach out to a franchise broker, who can help find the franchise system that is right for you.  

Do not forget to use some common sense. Investigate the franchisor’s reputation. Is the franchisor’s brand or trademark well-recognized? Are there a lot of competing businesses in the area where you want to set up shop?

Pay close attention to see if you are comfortable with the franchisor. You want to make sure you fit within the culture. Part of this process depends on asking questions and seeing how well the franchisor answers these questions to your satisfaction. You will have a close and ongoing relationship with the franchisor, so communication is key. Some important questions to ask include:

• What is the franchise fee?
• What is the monthly royalty fee? Is it a fixed fee or a percentage?
• What support does the franchisor offer?
• Does the franchisor offer strong technical support? 
• What equipment must you purchase?
• Does the franchisor help with securing a location? Do they review or negotiate leases?
• Does the franchisor offer training? What is the cost of the training program? How long is it?
• Does the franchisor have an advertisement program? Are you required to have an advertising budget?
• Is there a website, and if so, who maintains it? Is there an additional fee for this? Will your customers be able to place orders online?

Talk to franchisees with experience in the system you are considering to get their perspectives and insights. Don’t just speak with the most successful ones, but also the ones who have left, closed or abandoned their business. Contact information for these people is part of the Franchise Disclosure Document. Just because someone is no longer a franchisee does not mean it was the franchisor’s fault. Find out why, though. Did the franchisee go through a rough divorce, or was there a death in the family that precipitated the closing of the business?  

4. Organize Your Thoughts

Undoubtedly, you will have gathered a lot of information by now. Take your time to make this pivotal decision by narrowing down your options and deciding on the right franchise for you.

5. Look Before You Leap

Make sure there are enough compelling reasons for you to commit your money and talent to becoming a business owner. As important as they are, an interest in a particular product/service, the allure of being your own boss, or the fear of retirement is not enough to assume such a significant financial risk and time commitment. Make sure you have a high level of passion for whatever you do and that the proper support system exists with your family. After a long day, you often need a team to give you a pep talk to take on tomorrow.  

Remember to enjoy the process. Franchisors have already built a successful business and seek to bestow the knowledge and experience they have acquired over time.  

Now, go become part of the franchise team. Please contact Gary Remer with any questions about franchise ownership.