Look before you leap

Franchise opportunities can launch your business to the next level, but here’s what you need before taking the leap.

A franchise creates opportunity, offers a network of experienced help and can act as a shell for the business you’ve always wanted to own. However, before getting your foot in the door and signing on, there are some things you should keep in mind.

Due diligence.

Nathan Newlands, vice president of franchising for Spring Touch, says first and foremost, a good franchise should be able to address your specific needs.

“The question is, what do you need help with? Obviously, you’re already in the industry so you’re already enjoying it,” Newlands says. “(Maybe) it’s just that something is not quite working. Identify what that is, and why you need the help. Then ask if the franchisor is able to help you in that area.”

If you’re considering making the conversion to a franchise, your homework is to fully understand what areas you are struggling in. Newlands says that while franchisors do consider what your company can bring to the table, it’s more important to understand if the franchisor can offer you the right kinds of tools. While franchises may seem like a shoo-in for growing your business, not all of them have the best benefits.

Vice President of franchise development at Grounds Guys, Pat Hyland, suggests looking into what sort of coaching you will get as a franchisee after the agreement has been signed. Ask yourself if there’s ongoing training available and pay attention to the type of support system the network has built.

“Sometimes brands will just award you their brand and then pat you on the back and send you out and say, ‘good luck,’” Hyland says, which is a major red flag.

Aside from understanding where you stand with your goals, it’s also smart to review the franchise disclosure and then review it again with a lawyer. Hyland says working with a lawyer who specializes in franchises will be the best bet. He recommends using online resources from the International Franchise Association.

Hyland also recommends contractors talk with other franchisees before signing any agreements.

“(Find out) about their experience with the brand and the franchise,” he says. “I think that's a really critical part of this…validating what their current franchisees experiences are with being with that brand.”

Photo courtesy of NaturaLawn

Blaine Young, Franchise Sales & Development with NaturaLawn, also highly recommends talking to other franchisees.

“Talk to someone that is small, medium and large. Sometimes it’s not a bad idea to ask about failure rate,” Young says. “Look at the growth rate of the franchisees year by year to get a feel of what your growth rate would be by joining that system. The systems, processes, products and service are really what's going to attribute to the growth.”

“A potential franchisee should be able to clearly see the value in the agreement.” Pat Hyland, VP of franchise development, Grounds Guys

Steer clear.

Hyland says all good franchisors should invite potential franchisees to the headquarters and expect nothing in return.

“You should not be under pressure,” he says. “(They shouldn’t) expect you to bring a check and be ready to sign right there.” Contractors shouldn’t be in a rush, either. “It’s a big decision for a contractor to make the decision to become a part of a national brand,” he says. Taking your time and thinking things through will avoid the dreaded buyer’s remorse.

When you’re in the agreement process, the information you gained from the franchisees should reflect what you’re seeing and hearing from the franchisor.

“You want to see a consistent franchise,” Hyland says. If they’re always changing things, it might be best to move on.

If a franchise isn’t willing to be open with you as far as terms of the agreement or financials, it should make you question the operation.

“For someone looking into the franchise system, if the franchisor is elusive when asked some questions about the disclosures or their financials, that would concern me,” Young says.

Follow the money.

While all franchise agreements contain different specifics, Newlands says a potential franchisee should look to Item 7 in the agreement. This is where you’ll find a breakdown of where your money is actually going.

In some franchise agreements, a franchisee will be required to use a certain brand of equipment or a specific company for third-party services. Newlands says while that’s relatively normal, the potential franchisee shouldn’t be afraid to ask why. A worst-case scenario would be the franchisor giving business to a company that is owned by him as well.

Both Newlands and Hyland can attest to the financial benefits of a franchise. For instance, vendor loyalty can provide steep product and equipment discounts for a franchisee.

“There needs to be absolute transparency,” Hyland says. “A contractor should know what a day in the life of a franchisee will look like.”

The types of systems that a franchise has in place should also be of value to you. Experienced support staff is a huge asset for a franchisee according to both Newlands and Hyland.

“(A potential franchisee) should be able to clearly see the value in the agreement,” Hyland says.

Mind over money.

Being attractive to a franchisor is not so much about the size of the companies you’ve owned, but more so about realizing where you are in terms of your business and personal goals.

“Sometimes half of the experience is realizing ‘Hey, I'm not getting to where I wanted to get to and I think I'm going to need some help along the way,’ Hyland says.

Young says he always tells franchisees to be critical of themselves.

“What I mean by that is if I were franchise prospect (I’d need to) be able to say ‘I'm great at sales, but probably not your best technician,’ he says. “I would have to acquire the good talent to make sure that I got good technicians.”

January 2019
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