An Insider’s Practical Advice on Buying a Franchise

• November 18, 2019

You’re speeding along toward buying a franchise. Perhaps a franchise is the ideal business for you at this stage of your life, or a particular franchise has caught your eye because there is no competition for it in the area where you live.

It could be a great opportunity. Franchises offer predictable results, ready-to-go marketing systems and the support of a parent company that you can investigate before you buy. But there are some critical questions to ask that can eliminate costly mistakes and increase the likelihood of buying the right franchise.

Is the Franchise Really the Right One for You?

If you were starting your own dream business from scratch, what would it be? If the franchise you are considering is a lot different from that vision, step back and look for another that “speaks” to your emotions as well as your ambition to succeed. Because chances are you will be getting up every morning and going to that business, make it one that truly excites you.

Have You Studied Enough to Make a Wise Buying Decision?

Franchising companies hold sales meetings for prospective buyers. You should not base a buying decision on what happens in those meetings. They are very motivational, but sometimes do not tell you the full story. And if you feel excessive pressure to buy, move on. Be sure to:

• Read the franchise agreement from the first sentence to the last and make sure you understand every word of it. Take it to an attorney who has expertise in businesses and franchise purchases and go over everything. The cost is minor in comparison to the risk you are taking.
• Study at least five or six franchise agreements from different franchising companies and compare them to the agreement from the company you are considering. You will quickly understand what makes the franchise better than others – or worse.

How Much Leeway Will You Have to Run Your Business the Way You Want?

This is a balancing act. You want the leeway to control your business. But on the other hand, the franchise company’s rules protect you from the activities of other franchisees that can hurt the brand. Strong brands are built on consistency.

However, make sure the system is very engaged with owners and asks franchisees for input. Good things can only happen when good ideas from the field get filtered up to senior management.

Is there Competition Near Your Location?

When selecting a location, disasters can happen. While it is never possible to prevent all mishaps, you can turn the odds in your favor by talking to local business owners, who should know what new businesses are coming into the area. Another piece of due diligence is to visit the town hall and review building permits that have been filed in the area.

How Many Current Owners of the Franchise Have You Talked to?

Get to know current owners of the franchise you are considering. Take these steps:

• Ask about doing business with the parent company. Have there been unexpected expenses and unpleasant surprises?
• Ask about what is good and bad, it’s a simple question that can tell you a lot.
• Understand the system culture, how the franchisor and franchisees interact, whether franchisees help each other and whether the franchisor listens.
• Spend time in current locations and observe what is going on.
• Ask if you can review their financial statements. This might not be a comfortable question to ask, but those documents can reveal critical information.

Remember, the willingness of franchise owners to help you tells you a lot about the system. And another thing. Always talk to franchisees who weren’t recommended as contacts by the parent company.

How many should you talk to? The simple answer to that question is that you should keep talking to them until you feel comfortable that you are making a good choice. That number could be as few as five franchisees or as many as 20.

About Evan Hackel

Evan Hackel is a 35-year franchising veteran as both a franchisor and franchisee. He is CEO of Tortal Training, a leading training development company, and principal of Ingage Consulting. He is a speaker, hosts “Training Unleashed,” a podcast covering training for business, and author of Ingaging Leadership. To hire Evan as a speaker, visit evanspeaksfranchising.com. Follow @ehackel or call 704-452-7368. Why not have Evan Hackel address your group about franchising success?