part two of our series on buying and running a successful franchise. In this tutorial, we’ll take you through the steps involved in
searching for franchise opportunities, and give you some useful resources for
finding the best ones to invest in.
Before you start your search, of course, it’s important to have a clear understanding of how franchising works and whether it’s right for you.
Assuming you’re clear on what you’re getting into and are confident that buying a franchise is the right move to make at this point in your life, it’s time to look for a franchise to buy.
So in this tutorial we’ll take you through the process, from deciding on the type of franchise you’re looking for to searching for specific opportunities, drawing up a shortlist, and asking for expert advice.
By the end, you’ll be ready to go out and find franchises in your area with strong long-term prospects. You’ll still need to do some careful research before buying, of course, and we’ll cover that in future tutorials in the series. This tutorial is aimed at generating a strong shortlist for you to start investigating.
Step 1: Set Your Criteria
Often, people let someone else choose their franchise for them. They get a particular opportunity recommended to them by a friend or colleague, or see an ad, or get approached by a salesperson, and after a quick investigation they put down their money and get started.
While there’s nothing wrong with getting other people’s opinions, it’s important that you’re the one making the choice. Even if you’ve had a particular franchise recommended to you, it’s still worth researching some others, so that you can make sure you’re getting the best deal.
So start with establishing your own criteria for a franchise. Draw on the self-evaluation you did in the previous tutorial, and use it to define what sort of franchise you want to run.
Franchising expert Jim Coen recommends asking yourself which of these are most important to you:
Then, look at your personal finances to establish the amount you can comfortably invest in the initial franchise fee and setup costs. As we mentioned before, it’s important not to over-extend yourself, because in a franchise, just like any other business venture, there will always be unexpected expenses no matter how well you plan. Leave yourself a cushion, so that you can survive a few setbacks without going under.
Think about how much money you want to make, how hard you’re prepared to work to make it, and what risks you’re prepared to take. Different franchises have different risk/reward profiles, so decide whether you want a riskier business that could really pay off, or prefer to play it safer and receive a steady income. Some franchises also require a big time investment—for example, a fast-food restaurant that’s open from early morning to late evening every day of the week. Be honest about the hours you’re prepared to work, and how you’ll manage the commitment.
Also consider your own interests. You’ll be spending a lot of time working at this franchise, so it’s great if it’s something you care about. Some franchises are purely business opportunities—few people have a passion for convenience stores, for example, and yet many people run them successfully. But if you have at least some interest in what you’re doing, it’ll make things much easier.
The goal of this first step is to come up with a simple list of characteristics for the ideal franchise, including at least the following:
- preferred type of business
- business size
- any particular brands you’re interested in
- your budget
- amount of risk you’re prepared to take on
- hours you’re willing to work on a regular basis
- level of support you need from the franchisor
Step 2: Draw Up a Shortlist
When you’ve got a clear idea of what you’re looking for, it’s time to create a shortlist of actual franchises you’d be interested in researching further.
We’ll cover resources you can use to find these franchises in the next couple of steps, but first start a spreadsheet, with your main criteria as columns, and space to add particular franchises as rows underneath.
It could look something like this:
customize it, of course, adding columns based on the criteria that you’ve
decided are important to you. The point is to have a place to capture all the
information you’re about to find. There’s a lot of information available on the
web and elsewhere, and it can become quite overwhelming. So whether you use
this spreadsheet or another format, make sure you have a way of easily listing
possible franchises and comparing their most important features. Your goal will
be to come up with at least 10 franchise possibilities.
Where do you find the franchises and the information you need to fill out your shortlist? We’ll cover that next.
Step 3: Use Online Resources
Online franchise directories can give you a good overview of major franchises available in your chosen industry, and provide you with the data you need to start populating your shortlist.
A great place to start your search is Entrepreneur’s Franchise 500 Rankings. You can either look at the overall rankings, or search by industry, or filter by characteristics like “low cost” or “fastest growing.”
The rankings themselves are useful as an overall guide, but remember that you have your own criteria, and they may be different from those used in the ranking. So don’t feel compelled to shortlist only the top-ranked franchises. Drill down and look at the more detailed information in the profile of each franchise. You can find out how long each one has been in business, what kind of support is offered, what the setup costs are, and much more.
The International Franchise Association also has a search page on its website. Access their franchise directory. In it, you can find franchises by keyword, by category or by investment amount, or conduct a more advanced search. There’s also some basic information provided on each franchise, although not as much as on the Entrepreneur list.
There are literally dozens of other franchise directories out there, some more useful than others. Review a good list of some of the most popular franchise sites. It’s a good idea to consider the motivation of each directory provider, and the criteria for listing each franchise. You want to make sure you really are getting independent information.
Also look out for articles in the media about franchising, either in general or in particular industries. This piece in The Street, for example, covers fitness franchises, highlighting five top franchises and giving general advice and information on fitness franchising. Or this one in Forbes lists the top 12 fast food franchises by single-store revenue.
Keep in mind that there’s no shortage of information on the web, so your goal is not to find more franchises, but to find more reliable information about the best ones. Stick to sources you can trust, and keep your main criteria in mind all the time. Instead of looking for recommendations about “hot” opportunities, concentrate on finding solid data that will help you fill out your shortlist.
Step 4: Check With Local Consultants and Brokers
Although you can do a lot of research without leaving your computer, it’s still worth going out and meeting people in your local area to find out about opportunities you may have missed.
Franchise expos are held regularly in many different locations, so you can probably find one happening near you. These events generally provide training and seminars, along with the opportunity to meet franchisors.
Keep in mind, though, that many of the people you meet will be trying to sell to you. It’s best not to make any commitments on the spot, no matter how attractive an opportunity sounds. Instead, view the expo as an opportunity to find new franchises to add to your shortlist, focusing on gathering information and asking questions.
Another good option is to find a local franchise expert—a consultant or broker who can give you advice and help you find good franchises.
You need to tread carefully, though. Many consultants and brokers don’t charge any fees to potential franchisees, which can seem like a good deal. But remember that they’re getting paid by someone, and that may affect the advice they give. Often they get commissions for recommending particular franchises.
The Federal Trade Commission’s Consumer Guide warns consumers to be aware of the following:
- Franchise brokers may offer a limited selection of franchises.
- That selection may be based more on their commissions than your own interests.
- Some brokers “may steer you toward a more costly franchise to beef up their own commission.”
- Promised earnings figures may be misleading.
The bottom line: a truly independent consultant is a wonderful resource for you in helping you identify good franchise opportunities. They can bring valuable experience, knowledge and connections. But just as with the web resources we looked at earlier, you need to ask about the motivation of any franchise expert you deal with. Who pays them, what’s their incentive, and what are their criteria for recommending particular franchises?
Again, gather information, but don’t let yourself be sold on anything at this stage, particularly if the “opportunity” is presented as urgent, or seems too good to be true.
Step 5: Compare and Refine
By following these steps, you should easily be able to create a shortlist of at least ten possible franchises. In fact, you’ll probably end up with a lot more. Your problem at this stage may not be finding enough suitable opportunities, but sorting through the mass of franchises you’ve found.
So the final step is to review what you’ve gathered, and try to cull the list to something manageable. In the next tutorial, you’re going to learn how to research individual franchises in a lot more depth. It will involve a significant amount of work, so you don’t want to be looking at dozens of different franchises.
Go back to your initial criteria, and compare them against the data in your shortlist spreadsheet. Which franchises tick the most boxes? Be ruthless in weeding out anything that doesn’t quite fit.
Your goal should be to reduce your overall shortlist to about ten names. Also try to prioritize them, sorting the list in order of preference, so that you know which ones to start researching first.
As you’re attending expos and reading articles online, it’s easy to get swayed by particular opportunities that weren’t in your initial thoughts, but sound too attractive to miss out on. Although it’s fine to be open to new thinking, it pays to evaluate every opportunity against the criteria you set out to begin with. Those new ones you heard about may well be excellent businesses, but are they right for you?
In this tutorial you’ve learned how to find good franchise opportunities, both online and in person. You’ve seen how important it is to start by defining your criteria, so that you’re clear about what you’re looking for and don’t get sucked into something that’s not suitable. You’ve found some useful resources for generating ideas and finding the data to fill out your shortlist. And you’ve done a quick comparison of the franchises on your shortlist to keep them to a manageable number and prioritize them for further research.
The next step is to look into those priority franchises in more depth. The information you’ve gathered so far is a good start, but you’ll need to ask lots more questions, do more digging, and really get a deep understanding of the details of each business before you invest. You’ll learn how to do all of that in the next installment of our series on buying and running a successful franchise.