How to Choose a Franchise By Robert Edwards
How do I go about choosing the best franchise? Here are 6 quick tips on the best practices for effective franchise research and comparison.
Tip #1 Google. It's amazing what you can find with effective Google research. The good the bad and the ugly can all be found online. Now remember that larger franchises by virtue of having hundreds or even thousands of owners are more likely to have some bad feedback. One or two unhappy franchisees is not necessarily indicative the entire system is bad so take the feedback in context. Also newer franchises may not have any data available at all. Check for any unhappy or happy franchisee feedback on franchise forums or industry websites. Google not only the franchise name but also the franchise name plus the word "review" "feedback" or "unhappy"
Tip #2 Review Sites. Check local business review websites like Yelp or Angies list to see the feedback from actual customers who have visited existing franchise locations. For food or service type franchises this information is critical to see what the public perception of the brand is and what challenges you might encounter as a franchisee. Do customers think the food or service is fairly priced? Good service? Now remember some franchises will have good and bad franchisees in the system so check reviews on several franchise locations to get the bigger picture. Yelp, Angies list, Google reviews and even facebook are good starting points for your research.
Tip #3 FDD (Franchise Disclosure Document) After you complete the application the franchisor will provide you with an FDD. The FDD is a standardized form and is a great resource for information. They are often hundreds of pages long but you can pay particular attention to items like litigation, number of units operating, suppliers, territory size, length of agreement, financials, dispute resolution and item 19, which is the financial data of their franchisees. Now not all franchisees have an item 19 and not all item 19's tell the entire financial picture so be sure to look closely at the numbers when comparing. Once you have several FDD's in your possession you can easily compare the brands side by side to help you choose which one might be the best fit for you. Which leads to number 4.....
Tip #4 - Realize there is no "Best Franchise" only the best one that is suited to you. A franchise that is great for an extroverted, type A personality with a sales background is not good for someone who is not good with people or good under pressure, a more laid back personality. Shortlist your franchise choices not based on a name, or a particular industry but based on the business model (the day to day operations) that suit your background, skills, business goals and your personality type best. Make sure you really understand what is required of you to do day to day in the franchise and ask if that is something you would be happy doing for the next 10 or more years. Every business has a unique set of challenges, make sure you pick the battles you can win.
Tip #5 - SBA Failure rates. The US Small Business Administration keeps records of defaults on loans from most larger franchisees. This information reveals a percentage of how many franchises have failed in a given period. Google SBA failure rates franchises for the most recent list or contact us directly.
Tip #6 - Validation. And this might possibly be the most valuable research tool - Once you have several FDDs in your possession it's a good idea to call some franchisees. Each FDD will have a list of current owners and also those that have left the system recently. Check the general satisfaction rate and ask good questions like how is the franchisee support, would they invest again and what are some of the challenges they face. Pay particular attention to the types of personality that are doing well, and those not doing so well, and see which one most closely matches your own personality type and background.
In this day and age with so much information at our fingertips it's astounding that people are still buying franchises that after 5 minutes of research should really scare you away.
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