Factors to Consider When Choosing a Franchise

how to choose a franchise

Your Guide to Franchise Ownership

There is an estimated 775,000 franchise establishments in the U.S., and that number continues to grow. Why? Because the franchise model works! By leveraging a proven system, support and training, you can step right into a franchise business much more seamlessly than starting from scratch. But you have to do your due diligence... and that's where the IFPG Franchise Buyer's Guide comes in.

By arming yourself with knowledge and information, you can be well on the way to a new path as a franchise business owner. We have you covered every step of the way!

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Picking the Right Franchise Doesn’t Have to be as Intimidating as it Seems. Here's How to Choose a Franchise that’s Ideal for You. 

Looking into franchise opportunities can seem like a daunting task since there are so many to choose from. Before leaping into franchise ownership, you should consider your interests, skills, and financial situation. But what other factors are there to consider? 

Factors to Consider When Choosing a Franchise Include:

  • The franchise should have a good sales record. The primary benefit of franchising is investing in a working system that has already seen success. The operating system should be replicable and proven.
  • The marketability of your product or service is key. Doing market research is a critical part of the due diligence process and will help you determine if the franchise is located in a prime market that will lend itself to business success. Also, invest in an industry that is expanding and gaining market share.
  • Look into the competition in your area. If the competition is low, it will benefit you, but be aware of market saturation. For example, if there is a fast-food restaurant around every corner in your market, consider investing in a non-food-related franchise.
  • Invest in a franchise that has a lot of repeat business. This will allow you to expand the business and become an essential part of the daily lives of those in your community.
  • Be passionate about the franchise. You should be excited to endorse the product or service you are providing. If you don’t buy into what you are selling, nobody else will.
  • The franchise investment should be within your budget. Owning a franchise can be a costly endeavor. When considering how to buy into a franchise, you will have to factor franchise fees, royalty fees, and more. To make the best investment for yourself and your family, you should look at franchising opportunities that are within your investment range. You may be wondering how much does it cost to buy a franchise? It all depends on the brand and market you’re looking to invest in.
  • Do your due diligence and speak with franchisees in the system. There are many questions to ask before buying a franchise. Are they happy there? What are the culture and franchisee support like? Are they passionate about the franchise business? These are all questions to ask before buying a business.
  • Look into the franchise’s marketing initiatives. Depending on your franchise business, you may be responsible for local advertising. This is especially true if you’re not with a legacy brand. Good marketing campaigns can help get customers to your franchise store or home-based business.

Another important factor to consider when choosing a franchise is the type of ownership model that you want.

Owner/Operator

With this kind of ownership, you are front and center doing the daily operations of the business. If you want to make a full commitment to the business and be in control of all the decision making, then this ownership type is for you. This type of ownership is also good for those looking to make a career change; veterans looking to disrupt an industry; corporate refugees who are sick and tired of the 9-5 grind; or single mothers looking to turn a side hustle into a franchise business.

how to buy a franchise

Absentee Ownership

This type of ownership will give you an arm's-length control. It allows you to treat it as an investment and not a lifestyle change. While you own the business, you hire managers to deal with the daily operations. While this leads to higher labor costs, you can have more freedom and scalability.

Semi-Absentee Ownership

This is the best of both the owner/operator and absentee ownership models. With this ownership type, you have help with the daily operations while also having the time to have a day job and support the business financially. Many former athletes and other professionals choose this form of ownership after they can operate the business while pursuing other opportunities or spending more time with family.  

You also need to consider how many units you’d like to buy. You can choose:

Single-Unit Ownership

This is the classic franchise model and is great for novices trying to make it in the business world. With single-unit ownership, you can focus on one location. Single-unit ownership is especially beneficial if you are new to franchising. With one franchise store, you can focus on running it as well as you can and getting a better sense of how the franchise business operates. Since you only have one location, your franchise cost will be lower, as well. The franchise cost goes up as you own more locations.  

Multi-Unit Ownership

You may decide to own multiple units of a franchise in a specific area. Usually, a franchisor will give you a discounted rate per unit. With this type of ownership, it is common for the franchise owner to be the owner/operator of their main unit while taking a semi-absentee ownership role of the secondary units. But as a franchise owner with multiple units, you have more to focus on and shouldn’t take multi-unit ownership lightly. 

Area Developer

Area developers are similar to multi-unit owners but on a larger scale with more units encompassing a territory. The area developer is granted the right to open a certain amount of units by the franchisor.

A misconception about franchising is that fast-food restaurants are the only kind of franchise to choose from, but this is not true. The great thing about franchising is that there are franchise opportunities in any industry that you can think of:

Choosing a Franchise

Deciding to invest in a franchise really is exciting and life-changing. Before investing in a franchise business, it would be beneficial to speak with a Franchise Consultant. This professional knows how to buy a franchise and connects franchisors and aspiring entrepreneurs. The Franchise Consultant will consider your background, skills, and financial situation to determine if franchising is right for you. Based on their knowledge of how you own a franchise, the Franchise Consultant connects you to franchisors who align with your values and have an environment where you can succeed as a franchise owner.

Due Diligence Before Owning a Franchise

In addition to speaking with a Franchise Consultant, other important parts of the due diligence process include discovery day and franchisee validation. Entrepreneurs who want to open a franchise are invited to a franchisor's discovery day if they have what it takes to buy a business. During this event, which usually takes place at the franchise business’ corporate headquarters, you can question the franchisor and other leadership team members. Ask a few specific questions in order to get the most out of the experience.

Franchisee validation is also a good way to finalize your decision to own a franchise. As a prospective franchise owner, you can ask questions to existing franchisees in the system. The questions that you ask them should be thought-provoking and asked several times to get a good sense of how a franchise business really works. If you still believe that owning a franchise will beat you and the franchisor after this process, then go all-in and follow the system.

Factors to Consider When Choosing a Franchise

With more than 790,492 franchise establishments in the U.S., you have to consider what you are looking for before investing in franchise ownership with a brand. What is the brand’s sales record? Is it within your budget? What are the franchisor’s marketing initiatives like? You should also consider the ownership model that you want (owner/operator, semi-absentee, absentee), and how many locations you can own (single, multi-unit, area developer). While it can be tempting to pick an industry (food, pets, beauty) that you’re passionate about, don’t make the mistake of discounting opportunities that don’t initially excite you. Do your due diligence by speaking with Franchise Consultants and attending Discovery Days.

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