12 Things You Should Know before Buying a Franchise
Posted by Kenneth Burke on 10th Aug 2017
12 Things You Should Know Before Buying a Franchise
Buying a franchise can be a great career move that comes with lots of perks, like business ownership, brand recognition, and a potentially high salary.
But there’s a lot that goes into buying a franchise that the average person isn’t familiar with. So I teamed up with Julie Batycki at Educational Outfitters, the nation’s #1 school uniform franchise, to talk about things people should know before buying a franchise.
Julie’s been the VP of Operations and Development for EO through 5 Entrepreneur Franchise 500 rankings and 2 Franchise Business Review’s Best Franchises to Own awards. She’s opened dozens of successful stores and trained all of their owners.
After an enjoyable conversation with Julie, it was clear everyone should know at least 12 things before buying a franchise.
1. How is buying a franchise different than starting a business from scratch?
Think of it this way. Starting a business from scratch is like taking canvas and paint, and creating your own unique work of art. Buying a franchise is like getting a paint by numbers kit.
You still have to put in the work, but by following the guidelines, you’ll create something beautiful.
Neither option is inherently better or worse, but each provides a great opportunity for certain people. Which do you prefer?
2. How does buying a franchise work?
First, you talk through the opportunity with someone in franchise development. If you like what you hear, then you get the big details - everything about the company’s mission and approach, franchise fees, startup costs, territory size, etc.
If that looks good, then you talk to a few current franchise owners to get a better feel for the company, and fill out the formal application.
Then, if the company thinks you’ll be a good owner, they award you a franchise, and together you start the process of opening a new location.
3. Wait, franchises are awarded?
When you want to buy something, you go to a store or jump online and buy it. Franchising is different.
Franchisors (corporate) don’t want to sell businesses to just anyone with a pulse and money. They want to make sure new franchisees hold similar values and will be good for the brand. So they go through this process of awarding franchises.
Essentially, this means both the buyer and the seller think the other group will be good to work with.
The purpose of awarding franchises is to create a mutually rewarding relationship between the franchisor and the franchisee beyond the initial transaction. Because of this, it’s important to look into brands that share your values, not just ones you think will make a lot of money.
4. How big of a territory will I get?
The short answer is: you’ll always get a territory large enough to be successful.
The exact numbers change, but territory size typically revolves around target market density, and corporate will always make sure you get enough.
What’s the point of opening another location if it doesn’t have the customer base to succeed?
5. How long does it take to open?
From application to ribbon cutting, the process usually takes 9-12 months.
- You apply
- You work through a lot of details
- You decide if this is something you want to do
- The franchisor decides if they want to work with you
- Then the hard work begins
The two of you find your customers, lease a space, build that space out, get inventory, promote the store, and then open your doors.
There’s a lot to be done, and it normally takes 9-12 months to do it well.
6. How much work does it take?
A lot. In Julie’s experience, most franchise owners come out of corporate America, and are used to having assistants or co-workers helping them reach shared goals.
When opening a franchise, you’re the business owner. You’re responsible for everything from accounting to construction to marketing and sales.
Being a business owner can be incredibly rewarding, but the perks come with a lot of hard work.
7. How much money does it take?
It depends, but here are the big expenses you’ll want to consider:
- Initial franchise fee
- Commercial space
- Commercial build out
- Employee salaries (if applicable)
- Furniture and signage
- Hardware and software
- Supporting yourself and your family while ramping up
- General office supplies
All of these costs vary depending on the franchise. For instance, opening a McDonald’s will take $955K to $2.3 million in total startup costs, while opening an Educational Outfitters will take $82K to $200K.
Business loans are a common financing option, but most franchisors want you to have several hundred thousand dollars in liquid assets.
8. What do franchisors look for in potential franchisees?
Franchisors want people who will help make their brand stronger. They want people who share their values, work hard, follow guidelines, and have enough liquidity that they won’t cut corners trying to make a quick buck.
Each franchisor has a system that works, and they look for potential franchisees who will fit in with that system.
9. How much help will I get?
Any franchise development office has one goal: create more, successful stores. Your success is directly tied to their success, and so most franchisors will bend over backwards to help you out.
As a business owner, you’ll be responsible for making your store run, day-to-day operations, etc., but corporate is usually happy to help you improve and answer your questions. At the very least, they’ll be there to guide you as you launch.
10. Does absentee ownership work?
A lot of people want to buy a franchise with a track record for making money, pay someone else to run it day-to-day, and sit back while the money rolls in. It’s a great idea, but it doesn’t work.
Creating the situation where you can sit back and actually make money takes several years (or more) of quality work. Those who try to have someone else run their store from day 1 usually have a bad time.
11. How big of a commitment is buying a franchise?
Buying a franchise normally takes several hundred thousand dollars, a 5-10 year contract, and most of your time.
Business ownership can be incredibly rewarding, but it’s not something to enter into lightly. If you’re open to this kind of commitment, then buying a franchise could be a good fit for you.
12. How do I apply to buy a franchise?
Most franchises have a prominent Opportunities section on their website, where you can request more information. You can also call the franchise development office directly - they’re always happy to talk!
One common option is to go through a franchise broker (or portal) to “find the right franchise for you,” but most of these brokers take a significant chunk of the initial franchise fee, which leaves the franchise less to spend on helping you.
They can also push you towards opportunities that would give them a bigger cut. So it’s better to do your own research, find a few franchises that might be a good fit for you, and then start reaching out!
Buying a franchise is a great move for a lot of people. It gives you the opportunity to become a business owner while significantly cutting down on risk.
But there’s a lot to consider with franchising. Remember these 12 points as you dig deeper into franchise opportunities, and your journey to success will become a lot easier!