How to Choose the Right Franchise for You?

When you are choosing a franchise, it's very important to ask yourself some soul-searching questions about your personal strengths and weaknesses and the type of business you are suited to, writes Tony Dignam. 

Choosing a franchise is a very exciting opportunity and is something that you should take your time with to ensure you get the one that suits you best. It is important to realise when choosing a franchise that you are not looking to choose the best possible franchise but are trying to choose the one that best suits your interests and skills. If you do this and choose a well run and supported franchise then you are far more likely to be successful, make the return you are looking for and enjoy the experience.  Outlined below are ideas, thought and questions that may help you in choosing the right franchise for you.

1. Are you a risk taker and a real innovator?

If you are someone who has run your own business before or see yourself as a real innovator then maybe franchising is not for you. Franchising is ideally suited to people who want their own business but don't want to be on their own. They want the comfort of knowing that they are not the first to try something. While there are no guarantees franchising is a lower risk investment and is recognised by the banks as such as they will more quickly fund proven franchises than new start-ups. Statistics show that 91% of franchises are profitable whereas in non franchise start-ups up to 80% have closed within five years of starting up.

2. Why are you looking to buy a franchise?

It is important that you understand why you are looking to buy a franchise or indeed to start a business. If you looking to get more control over your life and to do something that you love doing then starting a business either from a green field or through buying a franchise can be the most rewarding and fulfilling decision you ever make. However, if you are looking to start a business or buy a franchise because you don't want to work as hard then think again. You may be able to work less hours in the long term, but make no mistake any business or franchise needs significant focus and hard work to make it successful, which is why it is so important to choose something that you enjoy doing.

3. What are your major interests?

If you can find a franchise that is in an area that you really enjoy then you will put more effort in, more passion which will come through to your customers so in the end will result in a more successful and enjoyable business. Do you enjoy sport, food, working with children, do you enjoy business, building relationships, networking? The answer to these questions will help narrow down the possible options of franchises which might best suit what you enjoy doing. There are approximately 300 franchise systems in Ireland, over 800 in the UK and over 3,000 in the US so there is a huge choice and probably at least one that would suit your own particular interests.

4. What are your skills and experience?

If you can combine your interest with your skills and experience and identify a franchise that fits with all of these elements then you are on the road to success. It is important when looking at your skills that you "take the blinkers off" and don't think of yourself as an Architect or a Solicitor, instead think of the skills that you have i.e.

The answer to these and many more questions will help identify whether franchising is right for you and if so what franchises out of the hundreds or thousands that might give you the best opportunity to be successful and enjoy doing so.

5. What investment levels are you looking at?

It is important to understand how much money you can afford to invest in a franchise. The banks are still lending and have a preference to lend for a franchise because of the significantly higher success rates of franchises. You can borrow up to 70% of your investment in a franchise from a bank which can include working capital. Any bank will want to see a detailed business plan supporting the business opportunity and will want to see that you have done your due diligence, understand the business and are capable of delivering against the plan. They will expect you to have done some what if analysis and that you have the capability of adapting if the plan does not come true, which it won't and that you won't need to come running back to them if for example sales are 10% lower than forecast. Therefore you cannot stretch yourself to the limit as you need to have something in reserve to support any deviation from the plan.

6. What return are you looking for?

You need to understand what return you need in the short, medium and long term and what return you would like to get. In general terms franchises that require the highest level of investment generally give the highest level of return, so you need to be realistic; you are unlikely to get a €100,000 a year return from a €10,000 initial investment, or if it is possible it probably requires high level of skill and a probably has a lead time before you will be bringing in these levels of income.

7. Are you looking for a well established franchise or are you open to new franchises?

­There are pros and cons to choosing a new franchise versus a well established franchise. A new franchise carries with it more risk as it has may not proven to work in all locations or in all economic environments. There are however upsides to choosing a new franchise. Firstly you will probably get an opportunity to work directly with the founder of the business so will get a first hand view of the business and what has made it successful. You will have the founder as a mentor and coach and will also probably pay less for the franchise than you would for a well established one. If you are one of the first franchisees your success is also far more critical to the franchise than if you are number 1,250 and will therefore get far more support and help than would be normally the case. The new franchise owner needs you to be successful in order for him/her to be able to fulfil their dreams of developing a franchise network. On the down side due to the increased risk, the banks generally will not provide as much of the funding so you will have to come up with a larger % of the finance directly.

Due Diligence

You should use the answers to the above questions to help identify the franchises that interest you. Once you have identified a number of potential options you should begin the due diligence process.  You should find out as much as you can about the franchise by:

Some franchisees might even tell you how profitable the business has been and most will tell you whether it lived up to their expectations or those set by the franchisor.

If none of the franchises you have spoken to fill you with confidence then start your process again as there are hundreds of franchises available.

Talk to the banks. The banks generally know which franchises are performing well and which are not. While they might not specifically say if a franchise is a bad one you will get indications from their willingness to lend the money.

Get forecast P & L from the business and if you are considering starting a green field business, then compare against starting from your own business. Assess whether you are getting value from the start-up costs and the ongoing costs.

If you choose a business that you like and suits your skills and experience, choose a successful franchise from that industry then history shows that you are on the road to success, good luck and enjoy an exciting journey.

Tony Dignam is managing director of www.freefranchiseadvice.ie

First published in Franchise Options Magazine© to order back issues please call 01 6611660