I’ve been asked “How to spot a good franchise” 100’s of times in my 20 years in franchising. The answer has never changed in my mind… it depends…
Check the Financial Performance
You can certainly determine the ‘health’ of any franchise company by reviewing the legal disclosures in its Franchise Disclosure Document or FDD. After verifying you meet basic franchisee criteria through a questionnaire, request for consideration or even an application, you will typically be provided with the FDD by the franchisor. This important document contains an array of information about the company such as its officers and directors, litigation history, bankruptcy and audited financial statements to name just a few.
Most franchisors will have a structured process for you to follow. This allows the two of you to get to know each other and to make sure all of your questions will be answered. A good franchise company will be responsive and as transparent as possible in the mutual evaluation process. Often times, the franchisor will test a potential owner during this evaluation process. This helps to determine if he or she will be a match for the franchise and is able to follow directions and execute tasks. Certainly, this is exactly what a franchise company is looking for in a qualified candidate, and, if that isn’t you, there is no ‘good’ franchise for you.
A Franchise to Fit Your Life
The best franchise for you may have nothing to do with your personal interests. I love sports, and I was in retail sporting goods for many years. It was great, but it was retail. And, I really didn’t have the time to enjoy all the fun gear I amassed. Likewise, the most successful owners I have placed looked for fits with their skills sets and lifestyle considerations. Do you want to be home with the family evenings and weekends? There are businesses for that.
Honestly evaluate who you are and where you are in life and understand where the franchise company is in its own life cycle. If you are more free-wheeling and risk-tolerant, you can look at a start-up franchise. To clarify, emerging brands have less than 50-ish units and usually seek more entrepreneurial initial operators. Or conversely, do you prefer a more established brand with a proven track record?
You see, it depends on what is important to you when looking for a franchise. That “good” franchise is different for everyone. Think of what the business can do for you and how it impacts all facets of your life. Be thorough in getting all your questions answered. When they are, make the decision.
By Matt Bogart