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How To Select A Profitable Franchise | Business Franchise Ideas

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Currently, there are over 1000 franchise opportunities in many different business sectors in the USA. Now that many people lost their jobs in retail, some are considering venturing into franchise businesses to control their destinies. No question that picking the right franchise can be profitable, but not everyone can afford a top-notch franchise like McDonald’s, Dunkin Donuts, Starbucks, etc. Besides the global brands, many other franchises cost a lot less and can provide stable income. The key here is to select the right franchise.

Exploring A Franchise Business

Buying a franchise should never be impulsive; you must do your homework. According to the Bureau of Labor Statistics, the failure rate for franchises is much lower (about 5%) compared to the 20% failure rate for retail businesses. Still, the numbers would be much lower if the buyer had done their homework.

Popular Franchise Opportunities

In general, some people never consider the type of franchise. Not all franchises appeal to everyone. For example, while most people love burgers and pizzas, buying into a franchise offering spiced ice cream or selling home insurance may not appeal to the masses. It would be best to look for a franchise with universal appeal; otherwise, you will have to do a lot of your own marketing that is not cheap. Secondly, look for a stable franchise. For example, McDonald’s, Wendy’s, Pizza Hut, Starbucks, etc., have a track record of success. But the same cannot be said of many newer startups. If you are going to be spending half a million dollars on a franchise, you need to find something that has been around for some time and has a good reputation. Some startups do become successful, but there is also a risk that they may fail.

Know The Competition

There are franchise stores located on almost every street in America, and this means there is competition. If the franchise you seek is saturated, then you need to think of something else. For example, Starbucks may be a solid franchise. Still, recently, the company has had to close many stores because of the intense competition with many other cheaper coffee shops. So seek a franchise that doesn’t have too much local competition.

Realistic Expectations

If you are considering buying a franchise and planning to kill in the first two years, you should consider something else. No matter which franchise you buy, you will most likely break even for the first few years. Most people start to see profits after the first 2-3 years. And it would help if you were realistic about how much money you will make. Most franchise owners make between $80K-$100K a year, and less than ten percent make over $250K. The reason is that franchises come with much overhead; the franchisor is also in the business of making money, and the more you drive, the more they take. Even investing $2 million in a McDonald’s franchise will only allow you to make about 200K per year in profit.

Why Do You Want A Franchise?

Before you start searching for franchises, you need to ask yourself why you want one. Do you want a better lifestyle? Want to make more money? Do you want independence? What do you want to accomplish? Are you just looking for another hobby? Or is it just ego? You need to know that no matter what franchise you buy, they all require hard work, long hours, and dedication. Competition in the business world is intense, and you will have to work hard to make money. While you may have some independence, the vendor will regulate all franchises to some degree.

How Long Do You Want The Franchise?

Many people never consider the time they want the franchise. Is it five years, ten years, or for life? Plus, all franchisors have restrictions on whom you can sell the franchise. It is not like a home that you can give to your children. It would be best if you asked these questions before you sign on the dotted line. Frequently early termination comes with huge penalties.

Are You Going To Be Involved?

One of the fastest ways to destroy a franchise is by not involving yourself in the day-to-day operation. Even if you plan to be involved part-time, you must have reliable and trustworthy people managing your business. The more you are concerned, the greater the likelihood that the company will succeed. In general, secondary management is never as good as the primary owner.

Do Your Own Research

Whatever the franchisor tells you, it would be best to do your research.

Search for reviews online, and read what others say about the franchisor.
Speak to other franchise owners whose names will be listed in the FDD. Ask the franchise owners anything you want, including the support, marketing, profitability, whether they are happy, if the franchisor is easy to get along with, etc.
Go to several other similar franchise stores and observe how they operate. Spend several hours just looking at the operations
Then spend time at the franchise location you will be buying. Assess the nearby competition, the availability of parking, ease of access, the daytime, and nighttime traffic, the demographics of the population, and nearby businesses, etc

Set Up A Deadline

If you want to get into a franchise business, you’ll need to set a deadline. Or you will forever go on searching for the right fit while nothing or everything appeals to you. Once you have a deadline, that will pressure you to find something that works, which will help you move on with your life.

Skills

Most franchises provide you with basic training and education, but you’ll probably be required to find your own clients. For example, if you have bought a computer repair franchise, you must find your own clients. And on top of that, you will need to have the skills to fix computers or find someone who can do the repairs. If you find someone to do the repairs, this will increase your profits. So with some franchises, you need to have a particular set of skills. There’s really no point in buying an auto repair franchise when you do not even know how to change a tire.

Work Hard

A franchise business is not for you if you do not have a good work ethic. Almost every franchise requires significant physical and mental energy. You may have to work seven days a week and put in long hours. Franchises often depend on other unskilled or part-time workers, and if they fall sick or quit, you will need to substitute. If you run a restaurant and your cook does not show up, you will need to jump in and take his place.

Be People Friendly

If you are an introvert, do not like socializing, or try to stay away from people, then a franchise is not for you. You will have to interact and socialize with your clients and customers in almost every franchise. You will need to deal with all types of personalities and accommodate their needs. Today’s customer is difficult to please, wants everything at a discount, and will not hesitate to write a negative review about your franchise- so you will need to adjust accordingly. Plus, and more importantly, you will need to manage your employees.

Meet The Franchisor

Once you have reviewed the FDD, meet the franchisor in person to get their style of management. Prepare a list of questions and determine the responses. It would help if you felt comfortable before you sign on the dotted line.

Do You Have The Right Personality?

Running a franchise means dealing with all sorts of people, and the more people skills you have, the better you will fare. Do you like making phone calls, and interacting with customers? Do you like listening to customer complaints? or dealing with constant employee issues? With most franchises, the people you employ will be unskilled, and the turnover can be high; hence you always need to be proactive and constantly have workers available if others quit. It can be a major headache dealing with students and part-time workers who lack motivation. If you do not like dealing with such hassles, then a franchise may not be the best thing for you.

Franchise Disclosure Document (FDD)

Once you decide to purchase a franchise, ask the franchise owner for the FDD. By law, all franchisors must give you an FDD, which will detail all the fine points about the franchise. You need to read and understand it thoroughly. Most FDDs are over 100 pages long, and you may require assistance from a lawyer to understand the finer points.

Things to look for in an FDD

What is the initial franchise fee?
What will be the ongoing royalty fees?
What other fees will you have to pay (i.e., marketing, advertising, etc.)?
Will you get any training?
What are the restrictions and other rules about the franchise? -like uniforms, hours of opening, restrictions on items you can sell, your supplies, placement of signs, accounting, etc
What type of support will you receive.? Is training only once or every month? Are you charged for the training?
Can you terminate the contract or resell the franchise? Are there any penalties for premature termination?
Is there a fee to renew the contract?

Other things the FDD will include:

The franchisor’s business history, the duration of the business, and experience
Any history of litigation, bankruptcy
What are the earnings of similar franchises and profitability?

How Much Investment Will You Make?

The initial franchise fees vary from $1,000 to $2,000,000. The franchise fee is an upfront fee that pays for the cost of operating the franchise. The initial investment will include fees for inventory, royalty fees, and sometimes even real estate. Most of the low-cost franchises include selling insurance and vacations, photography, promoting wedding venues, and so forth. If you start with a low-cost franchise, it will also take many years to make a profit. For example, investing $2,000 in a travel franchise will not immediately make you $10K. Selling insurance is not easy because of the competition, and these franchises have very high turnover rates.

In many cases, you will have to spend an enormous amount of time on your computer trying to contact people or knocking on homeowners’ doors. Plus, low-cost franchises usually do not come with real estate, so getting a loan can be difficult. Banks and lenders are not too eager to lend money to someone selling life insurance from home. Finally, reselling a low-cost franchise is a significant headache.

Are You Willing To Assume Any Risks?

Like any business, there are risks associated with any franchise opportunity. While the risk of a traditional franchise failing is low, they do fail now and then, especially when people do not do their homework. Plus, franchises have many rules and regulations, which may not be the best fit for you. So you must assume a certain risk when investing in a franchise. Even though there are many great franchise opportunities, the novelty of getting involved in a franchise has generally worn a little. The risks associated with a well-established franchise are minimal. But, if you enter into a shiny new cutting-edge franchise that makes 3D printers, for example, promises fast money, there is also a risk that it may not do well. 3D printers are not cheap, and the average homeowner or business may not be ready to purchase such an appliance.

Location

No matter which franchise you select, you need to know everything you can learn about the location. Just because the franchise belongs to McDonald’s or KFC does not mean it can’t fail if it is in a bad part of town. The franchise has to be conveniently located and accessible. It has to be in a safe area with parking. Plus, it should be in a place where the competition is not intense. If you buy a Pizza Hut franchise and have four other pizza shops in the vicinity, the competition will be fierce, and your franchise may struggle.

Marketing

While some of the more famous brands like Starbucks and Subway have an aggressive marketing campaign all year round, this is not so with many smaller franchises. Hence, you will sometimes need to market your franchise, which is not a cheap undertaking. So before you sign on the dotted line, you need to know if the franchisor will pay or help with the marketing. Plus, even when some do, they will charge extra.

Narrowing Your Choices

Even though there are thousands of franchises to choose from, depending on your interest and skills, you can cross off a significant number of them as they may not appeal to you. To select a franchise, avoid going with the brand but instead choose the type of business you are interested in. For example, do not be seduced by Apple Computers or Dunkin donuts; rather, select a franchise that matches your skills. For example, you may like animals, and so you may want a franchise that deals with pet grooming. But you will have to like dogs if you select this franchise. Be open-minded.

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Conclusion

Selecting the right franchise requires much work, but you can run into problems without doing your homework. The key reason why many franchises fail is that the buyer did not do the legwork -just reading how profitable a franchise is on the internet can be misleading. Buying a franchise is not a quick and easy process. It is a process that may take 3-6 months. The more leg work you put in, the better you will be equipt make an informed decision. Once you have the right franchise, all you have to do is work hard at it. Letting others run your franchise is akin to giving a stranger the keys to your safety deposit box. Good Luck