Buying a Franchise

Thinking about purchasing a franchise? Here’s what to consider.

By Taylor Mallory

Want to be a business owner without starting a business from the ground up? Then franchising probably sounds great. You get a proven business plan, a support system and a recognizable brand name. There are more than 760,000 franchise companies in approximately 75 industries – with startup investments ranging from $7,000 to $20 million. So how do you pick one that’s right for you? That’s what we asked our industry expert, KAREN SPENCER, CEO of franchise consultancy FRAN-SYSTEMS. Here’s what she suggests.

Which franchise do I buy?

Traditional wisdom, Spencer says, suggests buying within your core competency. “But if you’re in a field you hate, you won’t be as successful as you will if you buy a business you’re passionate about,” she adds. Mary Birrell, a Bark Busters franchisee, spent 15 years in telecommunications. When she decided to open a franchise, telecom was the last thing she wanted to do. Now she’s highly successful working with dogs, something she’s always enjoyed.

When’s the best time to buy?

“When your family is financially comfortable with the move,” Spencer says. And given the unstable economy, she warns: “Considering the credit crunch, now may not be the best time to secure a loan.” While it’s certainly not impossible to finance a startup right now, money is definitely tighter; and starting a business without the support cushion that loans provide isn’t easy. “Without solid working capital, operating your new business could create additional stress.”

What do I ask the franchiser?

Many of your most pressing questions will appear in the franchise disclosure document (FDD), including: What’s the investment? What’s your turnover rate? What’s your growth plan? What limitations are placed on the franchisee? And look out for the warning signs of a bad franchiser, Spencer says – “someone who pushes you to sign or doesn’t respond promptly to your questions.”

What do I ask other franchisees?

Franchise owners can tell you how much training and ongoing support they actually get. “This is particularly important if you’re going into a business you’re unfamiliar with,” says Denise Meng, owner of one Sign-o-Rama and one Billboard Connection franchise. “You’ll at least want enough initial training to run the show – possibly someone to help you open your first store, staff to answer your questions and a field consultant who can spend a few days with you when needed.”

Which franchisees do I talk to?

Don’t rely solely on the franchisees suggested by the company. Tracey Gifford, a Just Between Friends franchisee, talked to operators in her area as well as those with similar demographics. “I assumed other metro-area owners would have the same issues we’d have,” she says. Also, talk to former franchisees who have closed down or been terminated, Spencer adds. Their names must be included on the FDD.

Where can I get unbiased information about franchising?

A word of warning: Not all Internet sources are trustworthy. “Some companies that appear to be educational are truly brokers,” Spencer says. “Also, beware of franchise-related media sources. Companies sometimes pay to get their names in print, but this doesn’t mean they’re the best brands.” The best source of all? The International Franchise Association.