How Can You Find a Good Franchise Business?

Date: APR 24th, 2009

Topic: Industry Experts

 

Time after time franchisors comment on how difficult it is to find good franchisees.

Surprise!  As you look for a good franchise business you have just as many concerns and challenges.

For you it’s compounded by:

  • Lack of experience in running your own business.
  • Lack of knowledge about the industry you’re thinking of buying into.
  • Lack of background information about the franchisor’s history, performance and personality.

In many ways, it’s easier to select a family pet than it is a franchise business.  With a pet, if it’s a thoroughbred, you can check its papers for lineage, bloodlines, etc.  The breed will be known for its personality and mannerisms.  In some cases you’ll have an assurance or even satisfaction guarantee from the breeder or pet shop.  Often your spouse and children will be a vital part of deciding and why not?  It’s going to live in your world and home.

So how do you explore, investigate and analyze a franchisor?

Fortunately with the Arthur Wishart Act in Ontario you’re able to do this more easily.  If you live in a province other than Ontario, you can still ask for and receive the franchisor’s Ontario Disclosure Document.  In this you will find the franchisor’s:

  • History
  • Ownership
  • Key personnel
  • Performance (list of existing franchisees)
  • List of changes in franchisees, resales, closures and terminations (if any)
  • Legal landscape.  Are there any existing lawsuits?
  • Financial strength (balance sheet and P&L statement)

Now it’s time for you to look at, taste and smell the franchisor’s system and personality.

First:

  • Contact a random selection of the franchisees.  (Hopefully you’ll find some long-term and also some newer start-ups.)  Ask them about their experience.  What help do they receive?  Would they do it again?
  • Meet the decision makers from the franchisor’s management team.  Evaluate their skills and start to determine their personalities.  Are they co-operative or confrontational?

Next:

  • Don’t spend your time looking at a business you simply can’t afford.  This will only waste time and may discourage you with what you can afford.
  • Look at your net worth.  How long has it taken you to build it up?  What amount or percentage will you invest in your new franchise business. 
  • Especially, think carefully about what we call your risk experience.  Have you taken risks in the past?  This could be in the form of a job change, an industry change, a geographic relocation.  Have you ever invested in or owned a business of some kind in the past?

What has been your past risk experience?

  • Have you bought a house or real estate?
  • Have you invested in the stock market?
  • How much do you invest yearly into your RRSP account?  For how many years have you done this?
  • Have you ever managed a business (small or large)?
  • Have you changed jobs and if so, why?
  • Do you like to try new things (job, social, hobby, etc.)?
  • Do you like to gamble?

Look at your net worth

                        Asset List:
-cash                                      -real estate
-savings                                 -investments
-personal                               -car

                        Liabilities List:
-credit card balance             -loans (type and term)
-mortgages, etc.

  • Now - deduct your obligations (liabilities) from your assets.  This will give you your net worth.  The main question is how much you’re going to invest from your net worth and how much you will borrow from banks, family or “angels”.

Of all factors, your past performance in taking risks may be the most important.  If you’ve never been through any of these changes, maybe it’s best not to jump in.  Alternatively – maybe a partner will reduce your risk.  With good franchisor support, you’ll still have lots of challenges in the day-by-day operation of your new franchise business so you won’t need to second guess yourself.

Now, let’s get back to choosing a franchisor.  First – decide on the “breed”.

  • Do you want to be in the food/hospitality industry?
  • What about a retail store?
  • Do you like a specialty industry?
  • Is a home-based business for you?
  • How about a service business?

Many factors will go into this choice.  It’s a very important decision since everything else flows from it.

Take a look at your own background.

  • Have you supervised others?
  • What hours are you used to working?
  • What interests or commitments do you have outside of your job?
  • What time and responsibilities do you have to devote to your family and community?
  • What income have you earned in the past?
  • What are your monthly living costs?
  • Do you have a spouse or partner?  Will their income cover your monthly expenses?

Proceed with caution if you are investing more than 50% of your net worth, especially if you’ve avoided risks in the past.

Lifestyle:
After everything else has been reviewed, one important ingredient remains.  What will you enjoy?

  • Do you prefer manual work or paperwork?
  • Do you like quiet and privacy?
  • Do you enjoy meeting new people?  If yes, are you comfortable doing so?
  • Do you prefer to work indoors or outdoors?

Regardless of these or other personal traits or preferences, keep in mind that you must be the prophet.  Day after day you need to enjoy working your business.  If you don’t, you’ll resent its demands and challenges and you won’t do as well as you could.

All of this is presented to prompt you to start to analyze yourself.  Many franchisors rely on psychological testing to give them an added insight into you.

I’m amazed and even shocked at how many people go into a franchise business without professional advice and/or self-analysis.  Do so at your peril – then, truly, it’s buyer beware!

Years ago I went to a testing group to help me analyze myself.  Their reports and comments confirmed many things I already knew yet surprised me in some areas.

Spend money for professional advice and contact us if you’d like to use a personal success analysis form.  It adds up as help in making your choice.

Finally:

  • Look at the industry.
  • Investigate and analyze the franchisor’s personality.
  • Analyze your financial investment and obligations.
  • Analyze yourself.

By doing all of the above, it will mean you’ll have a much better chance of choosing a good franchisor and having a happy, healthy business.

Written by C. John Woodburn

John can be contacted at:
Woodburn & Associates
4034 Mainway Drive – Suite 202
Burlington, ON
L7M 4B9
Telephone:  1-877-322-2153 
Fax: (905) 335-4649
Email: woodburnassoc@on.aibn.com