While buying a franchise is not for everyone--such as those who need complete autonomy--it's a mode of entrepreneurship that is compelling for many people. For one thing, the company selling the franchise has already invested in a brand people recognize regionally or nationally and in doing so has figured out a business strategy that has been proven to work. To bring new stores into the fold the franchisor provides training and helps with marketing to get a fledgling franchisee off and doing business. But how does a person pick the right one? Take some tips from Andrew Cagnetta, CEO of Transworld Business Advisors, a business brokerage franchise consulting company that for 35 years has made a business out of selling franchises.
Do your homework.
The Internet makes researching companies easy. "You want to be an educated consumer because it's very hard to make a financial decision about your future if you don't have anything to compare it against," Cagnetta says. This means researching the franchisor's competition, as well.
Call people who have already invested in the company.
The Internet can only take you so far. The Franchise Disclosure Document (FDD) the franchisor is required by law to provide you as a prospective buyer includes contact information for franchisees who can give you first-hand, honest feedback about their experience with the company.
Don't just take one franchisee's word for it.
In talking to people who've bought into a brand, what if you happened to pick the one franchisee who may not be doing things right, and therefore floundering and unhappy? "Understand that not every franchisee of every franchise is successful," he says. "You name the franchise [and] there's someone that probably did poorly at it, even though it's a good franchise."
Understand your strengths and weaknesses to determine if the franchise is a good fit for your personality.
In other words, if you're not a born salesperson don't buy a franchise in which you'll need to sell. Instead, find one in which customers come to you based upon something other than your skill, such as your location. "You could always hire your weakness, but you really want to your business model to be driven by your strengths," he says.
Find a franchise you can be passionate about.
Cagnetta holds up the example of someone who started a franchise for home health care because of a negative experience hiring a company to take care of an aging parent. "So they went out and have a franchise that they feel has higher-end services and making sure good people are taking care of these elderly patients," he says.
Make sure you have working capital.
Depending on the franchise you buy you may or may not have customers right away. If not, how are you going to cover your operating expenses? "You're going to need some time and you're going to need some money," he says.
Take advantage of programs for special demographics.
For example, Cagnetta says plenty of programs exist that lend money to veterans to buy franchises. "There's a lot of franchisors that want to help those kind of people," he says. "So there's a lot of resources out there."