Should You Buy a Franchise?

January 15, 2015

Analyzing Franchise Opportunities

Volano Solution’s most recent Saas application, Action Card, has a growing client base in the franchise market. Thought we provide the best consultation around software as a competitive advantage, our work with franchise companies and our experience in that industry naturally puts us into that thought-sphere.

I worked with a lot of people who were interested in buying and owning a franchise during my days at 1-800-Radiator.  In a way I lived vicariously through these people who were at that point in their life where they were ready emotionally and financially to own a business and be their own boss. They were strikingly dissimilar save one common denominator; a readiness to not report to anyone any more. Franchising is definitely a step in that direction, though there are still a lot of guidelines and standards to follow and autonomy is not a wholesale given. Many of our Action Card clients are growing franchise companies. They look for the right owners (or should) as carefully as potential franchisees look for the right brand. Here are some nuggets of wisdom for people flirting with the idea of buying a franchise.

Being Your Own Boss

One of the main reasons that people buy franchises to run is to have autonomy and control. If you feel as though you are ready to parlay your life experiences into business management without having a day to day boss, you may be interested in franchising. However, in franchising you are still required to follow the brand standards and model of the corporate ownership. It’s a different kind of boss. But you sign up for a franchise to buy into a proven model. If you think the model is flawed and in need of change, don’t invest in the franchise.

 Be Prepared to Drop Some Coin

Depending on the franchise that you buy, expect to pay between $20K to 2 million. Financing franchises can be tough, even as the economy continues to gain steam. Buyers should read and understand the franchise disclosure document. Be familiar not only with your royalty obligations but the marketing fee you are usually paying in addition. Write a business plan, revenue goals and understand what your expenses are going to be and where you need to be to break even and turn a profit. Understand that nothing goes as planned and talk to as may franchisees as you can before signing an FDD. In fact, good franchisors will require this. If you skip those calls and visits and the franchisor does not care and does not ensure they are being made, you’re setting each other up for failure. Understand what your staffing needs will be, how much they will cost you in total factoring in benefits and list out your fixed costs and operating expenses down to the finest detail.

Size Matters

It’s important to understand that smaller franchise concepts have less history from which you can draw on to predict the likelihood of success. You may have more wiggle room to negotiate stipulations with smaller franchises than with larger, well-established brands, but the unknowns are greater. According the The Wall Street Journal; “systems with fewer than 50 units may not have all the bugs worked out of the business model. That could require more business and operational skill from franchisees than a larger system.”

Work Ethic

Be prepared to work long hours. Buying into a franchise is no guarantee of customers and revenue. Though you are following a template, you have control of driving culture, staffing, local customer marketing and establishing best practices takes a lot of time, training and commitment. Being available will paramount and learning every aspect and role in the business is critical. If you are leaving the corporate world to run your own business, add 15-20 hours to your work week. Minimum. Most of the owners I worked with evolved significantly from year 1 to year 3. They were a great group of people and many of them are still growing their local markets and adding additional locations. They will say it can be fun but none of them will tell you buying and running a franchise was easier than they thought it would be.

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