Having a niche in the franchising industry, we frequently get asked by investors which franchises are “hot,” what are the “good ones,” or which would we buy? The question is sometimes posed similar to a buddy asking for a penny stock tip, or which race horse we think will cross the finish line first. Everyone loves inside information from an expert, but choosing a franchise is much different than investing in a penny stock or gambling on a race horse. You don’t have to be an experienced jockey to bet on a horse race; nor must you know how to drill oil to invest in a penny stock. However, when investing in a franchise, it's a good idea to know the product and to have experience in the industry.
Before answering the question “Which Franchise Investment is Right for Me?” ask the following questions:
1.) What do you love?
What are your hobbies and passions outside of work? Do you enjoy gardening, working-out, pets, children, cars, food, coffee, etc. Could you see yourself at the register, taking inventory, calibrating thermometers, mopping floors, etc. Some franchisors such as Dutch Brothers Coffee only sell their franchise to qualified employees. This helps keep the brand strong with franchisees who have a track record of desire, determination and drive. Despite the dream to simply manage from afar, the reality is that you’re more likely to be hands-on, at least for a while. Prior experience in your chosen business will help alleviate unexpected work pleasantries.
2.) What Is Happening the World Around You?
Millennials drink coffee (and lots of it), boomers pass on the pizza, 50 is the new 30, and white is the new black. It is estimated that every 13 seconds another American will turn 65 years old, and this will continue for the next two decades. Understanding how trends impact social and economic dynamics can help you decide your next franchise investment. In an aging community, in-home health care, such as Home Instead Senior Care may be an obvious choice, but consider the not-so-obvious, such as cruise planning franchises, and bird-watching franchises, both proving fruitful in our aging economy.
3.) How well does the franchisor support their franchisee?
Once you’ve narrowed your search, compare the franchisor’s support systems. Franchisors such as Massage Envy, for example, offer elaborate training conferences; along with appreciation efforts, such as Franchisee of the Year, Aesthetician of the Year, etc. This can make a significant difference to the longevity, success and general satisfaction of owning a franchise. Check to see if the franchisor puts more thought into the training and support of its franchisees, or focuses solely on proliferation.
4.) Which franchises have the highest franchisee satisfaction?
The best way to get feedback on franchisee satisfaction is to have face-to-face interviews and conversations with the franchise owners. If this isn’t feasible, check other reliable resources. Franchise Business Review is a national franchise market research firm that performs independent surveys of franchisee satisfaction and franchise buyer experiences. The firm administers the FBR50 Franchisee Satisfaction Awards, rating the top franchises based on overall franchisee satisfaction by participating companies.
5.) How much money can I make from the franchise?
How do you know if the franchise investment will provide the income you seek? Item 19 is the portion of the franchise disclosure document that may be the closest representation to this question. As defined in the amended FTCD Rule, a Financial Performance Representation is any representation to a potential franchisee that states a specific range of potential sales, income, gross profits, or net profits. Under FTC rules, no information about the financial performance of a franchise that meets the definition of a Financial Performance Representation can be given to franchisees unless it is listed in Item 19. Franchisors have the freedom to develop the information they include in Item 19, however, it must follow a few legal standards. For example, the amended FTC Rule makes it unlawful for any franchise seller to make a financial performance representation that is not true or not substantiated when it is made. item 19 information has some heavy legal sanctions, so it is likely your most reliable source of information to help answer the famous question: “How much money can I make… “ However, before making any financial decisions, hire a reliable attorney who has a comprehensive understanding of franchise disclosure documents.
Answering these questions will set you on the path to making your own investment decision. Your penny stock may crash and burn, but with careful research and consideration, your franchise may just be your next sure bet.