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What is
the Best Franchise?
By John Henning at
OpenAFranchise.com
What is a Franchise?
Franchising refers to the methods of practicing and using a
specific business philosophy or system. The Franchisor, or Home
Office, grants the franchise operator, the franchisee, the right
to distribute its products, services, techniques, and trademarks
for a percentage of sales, commonly called a royalty fee.
Various services are provided by the franchisor, such as:
advertising, training, startup assistance and other ongoing
support. A Franchise License is awarded by the franchisor to
the franchisee. This written agreement forms the foundation for
the relationship between the 2 parties and clearly outlines
their responsibilities to each other. The Franchise License
usually lasts between 5 & 25 years.
What is the best Franchise?
As a Franchise Consultant I get asked this question on a daily
basis. I work with clients to help them find the right
franchise and through those conversations they almost always as
me: "What is the Best Franchise?". There is no single answer
for this question as the answer truly depends on the criteria
you set as a perspective franchise owner. Meaning, maybe you
want a retail location with 5 employees that makes $50k/yr, or
maybe you want a home based business that has zero employees and
makes $150k/yr. Either way, the word "best" becomes relative to
what is important to you.
I realized quite some time ago that I could never "sell" a
franchise to anyone. The only way someone will buy a franchise
is if it makes sense for them & their family. Performing the
proper due diligence is key to finding the best franchise for
you.
How much does a Franchise Cost?
The total up front cost for a Franchise will vary between $30k &
$100k. This is cash you must have prior to any financing
options. You should also have a credit score of at least 700.
Most of the up front cost for a Franchise
is the Franchise License Fee. This fee will vary between $20k &
$50k. The Franchise License Fee covers your training, startup
assistance and usually your protected territory.
The total cost of a Franchise will usually
vary between $30k & $500k with the average total investment
being around $250k. Financing is available for the balance of
the Franchise cost depending on your credit score and the
Franchise Company’s rate of success. A good rule of thumb is to
have at least 30% of the total investment in cash.
For example, for a Franchise with a total
investment of $250k, you would need approximately $60k in cash
prior to any financing. This cash can come from savings, home
equity, 401k, Retirement, Partners etc…
Some common factors that influence the
startup costs are;
- Age of the franchise
- Number of franchises
- Responsibilities of each party
- Name brand recognition
- The service
- The product
- Length of term
- Finance Terms
- Real Estate Costs
- Many other factors
Why buy a Franchise?
Most people purchase a Franchise for one of
two reasons.
#1. Reduce their risk. Quicker startup times, faster break even
points & ongoing help after startup. All of these things help
reduce the risk of starting a business.
#2. They don't want to create a system, they want to use someone
else's program, not reinvent the wheel. The Franchise’s System
is the main component of what you are buying when you buy a
Franchise.
How much can I make with a Franchise?
Another one of the many questions I get asked on a regular basis
is: "How Much Can I Make". This is an important question
regardless of the type of Franchise you are exploring. The
simple answer is: I can't tell you.
Franchising is regulated by the FTC. The FTC does not allow a
Franchise Company or Franchise Consultant to make an earnings
claim unless those earnings are published in their Franchise
Disclosure Documents or FDD. Most companies don’t post those
numbers for legal liability reasons.
However, this is still a very important question that you need
to know the answer to prior to buying a Franchise. The real
answer is: No one can tell you how much YOU are going to make,
because the biggest determining factor in that equation is YOU.
However, you are able to get a feel for what the potential of a
particular franchise might be by talking to existing franchise
owners that already own that same franchise in another area.
This is part of the due diligence process that we help our
clients through.
What should I look for in a Franchise?
When researching any Franchise, you should look for some key
factors. This list is by no means an exhaustive list. There
are many more things you could look for too, depending on what
is important to you.
- How long have they been in business?
- How many franchises do they have?
- What are my responsibilities as a franchise owner?
- What are the franchisor's responsibilities?
- Where is the industry now? Where was it 5 yrs ago? Where will
it be in 5 yrs?
- How many franchises have failed? And why?
- Do they make an earnings claim in their FDD?
- How many home office employees are there?
- Is the franchise organization expanding, stagnant or
shrinking?
- Do I get a protected territory or name brand to use?
- How often do you hold training & where is it held?
- What are the average gross revenues per unit nationwide?
- Did they start as a Franchise or as a business and expand
through franchising?
These are just a few of the questions to talk about when
researching a Franchise. There is a free eBook on franchising
that is published by the FTC: A Consumer Guide to Buying A
Franchise, you can download it for free here:
EbookOnFranchising.com
Summary/Closing
As you start your entrepreneurial search for a franchise, make
sure to perform the proper due diligence, talk to existing
franchise owners, visit the home office, talk to a lawyer, and
work with an experienced franchise consultant. A good franchise
consultant can help you find the right franchise by making sure
you get the information you need on each franchise.
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John Henning is a Franchise Consultant based in Pottstown, Pa.
John's company: OpenAFranchise.com helps people find the right
franchise by helping them through the discovery & research
process. With over 5000 Franchises & business opportunities out
there, John & his team help guide clients to the right
information on each company.
OpenAFranchise.com is a local Pottstown
Company and they provide this service for free to anyone that
wants to explore the possibility of franchise ownership. You
can read more on John's Website:
OpenAFranchise.com or send him an email here:
john@openafranchise.com or call: 610-326-0182 |
