Buying a Franchise: A Beginner’s Guide
From the Archives: This was written back in 2014(!) when I was a Partner with Murphy Business Atlantic. I was a little green behind the ears at the time, but I had just recently purchased my own franchise, and thought it was worth sharing insight from my own experience. So I am sharing it again here.
I bought a franchise recently, and I’ve been asked a lot of questions. Are they more likely to survive? Will I make more money? Am I better off buying a franchise or starting my own business? Statistics vary widely, and many are highly disputed. However, I do honestly believe that a good franchise has a better chance of survival than a new startup – especially when competing in a well-established industry, or an industry in which you have limited previous experience.
Franchises offer instant brand recognition and existing products and systems that can be very expensive and time-consuming to create on your own. However, these benefits come at a cost. Franchise fees and royalties can be significant. Like any business decision, you need to weigh the pros and cons while keeping your own personal goals and capabilities in mind.
Buying a franchise can be a daunting task. There are thousands of franchises operating across North America, and choosing the right one isn’t easy. I’ve met with many budding-entrepreneurs who spent 10 minutes on a franchise listing website and gave up. Reviewing and choosing from all of these franchises can take months. That’s why you need to have a plan in place.
To start, be honest with yourself. Know what you’re good at and what you’re not. If you’re not confident in your sales abilities, many business-to-business franchises may not be right for you. This doesn’t mean you shouldn’t be open to new industries that you haven’t worked in before – many skills are transferable from one profession to another. It just means you need to be aware of your own personal limitations.
Be open-minded. Many people hear the word franchise and they immediately think of food giants like Tim Horton’s or McDonald’s. In reality, the world of franchising goes far beyond food services. Food service franchises can be extremely time-consuming and require a significant capital investment. They are often not the best choice for those with no background in the industry.
And don’t do something just because you like it. I once met someone who bought a frozen yogurt franchise because his family loved frozen yogurt. This was a terrible idea, and the franchisee soon hated the stuff. You need to identify industries that you feel comfortable working in every day for the foreseeable future. Buying a franchise requires a long-term commitment to be successful.
Have your financial ducks in a row. Each franchisor has it’s own financial criteria for choosing franchisees. All of them will ask for your financial net worth, the amount of cash you have available to invest, and will perform a credit check. Have all of this information available ahead of time and know where you stand. There is no point in spending time on a franchise that you do not financially qualify for.
Narrow down your list. Having 2 to 3 options is ideal, but I would not recommend any more than 5. The research and interview process used by franchisors is time-consuming and will leave you little time for anything else. Choose 2 to 3 that you are serious about and pursue them zealously. Learn everything you can about them, both good and bad. Review the Franchise Disclosure Document (all franchises are required to have one), talk to key management in the company, and speak with existing franchisees. Discuss them with your family and advisors too – make sure you have their support. You’re going to need it.
Ultimately, you need to make a decision. My father always said, “Shit or get off the pot”. It’s crude, but true. Do your research, but don’t overthink it. Once you’ve made up your mind, dive into the franchise you chose and don’t look back. At some point you will experience buyer’s remorse – everyone does. It’s normal. But don’t let that fear keep you from taking a calculated risk that is right for you.
Buying a franchise, when properly researched and evaluated, can be an incredible personal and business opportunity. I’ve done it myself. And if you’ve done your homework, and it makes sense, then take a chance.
Disclaimer: I am (thankfully) not a lawyer, nor am I an accountant. If any of this sounds like legal/financial advice, it's not. Take everything I say with a grain of salt. But not too much - I hear it's bad for your blood pressure.
