What makes a good franchisee?

April 18, 2016 -  By

Experts weigh in on the requirements for success in owning a franchise.

With data that show franchise small businesses grow at rates that exceed nonfranchise business growth, according to the International Franchise Association, it may be tempting to consider signing on with a franchise brand.

But franchise experts emphasize this option isn’t for everyone.

“It’s not a business choice; it’s a life choice,” says Ken Hutcheson, president of U.S. Lawns, an Orlando, Fla.-based franchisor.

So, how do you know if you’d make a good franchisee? Experts say it comes down to finances, objectives and cultural fit.

Dollars and cents

It all starts with finances, says Kim Bonner, owner of New Day Consulting Systems in Washington, D.C. She helps franchisors identify qualified franchisees, among other things.

“Undercapitalization is the No. 1 reason why any business fails,” she says. “So if a candidate isn’t comfortable with the initial franchise investment and isn’t able to have cash reserves, it’s a problem.”

Franchisors disclose fees and cash requirements in the Franchise Disclosure Document (FDD).

It’s vital to feel comfortable with those figures, says Therese McGroarty, because if you’re strapped from the get-go, it’s a difficult feat to overcome. She’s a consultant with FranNet in Northeast Ohio who also owns several franchises with her husband.

“You need to have enough to sustain the start-up phase and some extra working capital,” McGroarty says.

Often, financing is available for the franchise fee and equipment through the franchisors’ partners. But a stable financial footing is essential, says Hutcheson.

“If they’re struggling today, they need to get their house in order first,” he says.

Another financial consideration is to identify your financial goals to see if they align with the brand.

The FDD’s Item 19 shares earning potential—how much it’s possible to make if you follow the road map.

“That’s something to look at and ask, ‘Is that figure enough for me?” McGroarty says.

Goals and personality

If you’re not having success independently, converting your business to a franchise doesn’t mean instant profits. Part of the problem might be your strengths and desires, experts say. Franchises are looking for people with a management mindset, not necessarily those who excel at or want to continue cutting grass, installing landscapes or treating turf.

“We’re looking for someone who will be actively engaged in running their business, not someone who wants to be in the field on a crew,” Hutcheson says.

He says it’s not wrong or bad to want to be a craftsman, technician or “man in the van.” It just may mean you’re not cut out to be a franchisee because you won’t be satisfied managing people and executing sales and marketing plans.

McGroarty agrees. “A lot of times people go into buying a franchise, but they don’t explore what the owner’s role will be,” she says. “It’s very hard to work in the business and continue to be successful. You have to work on your business.”

A necessary characteristic of any franchisee is the ability to follow the system, experts agree.

“It’s already a proven system; there’s no reason to reinvent the wheel,” McGroarty says, noting her firm gives potential franchisees compliance assessments.

Bonner agrees. “If you’re a hard-core entrepreneur and you have a problem with structure, you probably don’t want to invest in a franchise,” she says.

On the other hand, great franchisees don’t expect the franchise to do everything for them.

“They’re giving you a model and a system that you, yourself, have to work,” Bonner says. “You can’t expect your franchise to do your marketing, your sales or delegate and manage for you. This is your business.”

Cultural fit

A key component of evaluating a franchise opportunity is considering the company’s culture and whether you’d be a good fit, experts say.

“It’s kind of like a marriage, and you want to marry someone you like,” McGroarty says.

Pay attention to every interaction you have with the brand—including email exchanges, phone calls and in-person meetings with everyone from the company.

“It’s not sufficient for you to base your evaluation on the discovery day,” Bonner says, referring to the open house or on-site meeting at the franchisor’s headquarters. “That’s a foolish decision because it’s a well-orchestrated event. But culture is day in and day out.”

Aside from your interactions with the corporate staff, it’s vital to question current and former franchisees. Contact information for both groups is included on the FDD.
McGroarty recommends contacting about a dozen franchisees.

“Those are the people who are going to tell you the truth about the business,” she says.
For that reason, Hutcheson encourages prospects to contact other franchisees early in the process.

It’s a bad sign if the existing franchisees won’t get back to you or are negative about their experiences, Bonner says.

“If people aren’t answering emails or phone calls or if you reach them and it’s cold, aloof or off-putting, that’s a serious red flag,” she says.

Hutcheson says the question comes down to, “Is this a good fit for me?”

“It’s not whether a franchise it good or bad, it’s whether the franchise fits your goal,” he says. “Just make sure the model will deliver what you want from both a personal and financial standpoint.


Questions to consider

10 key questions from the International Franchise Association.

While there are many examples of successful franchises, buying a franchise is no guarantee of success. Before buying a franchise, carefully and thoughtfully answer these 10 important questions.

  1. Are you willing and able to take on the responsibilities of managing your own business? Some careful self-analysis is important before buying a franchise. Indeed, your personal house should be in good order. One myth is that franchise ownership is easy. That’s simply not true. While the franchise system will give the start-up training and offer ongoing support, you, the franchisee, must be prepared to manage the business. While some franchises may lend themselves to absentee ownership, most are best run by hands-on management. You must be willing to work harder than you have perhaps ever worked before. Forty-hour weeks are also a myth, particularly in the start-up phase of the business. It’s more like 60-to-70-hour weeks.
  2. Will you enjoy the franchise? Sometimes people buy a franchise they think will make them a lot of money, only to find later they don’t enjoy the business. The adage “know thyself” certainly applies here. You should buy a franchise that centers on an area you will enjoy for the next 10-15 years.
  3. Are you willing to completely follow the franchise system? The key to franchising success is the product and service consistency customers find from one franchise to another. When you display the sign and logo of a franchise, you’re indicating to customers that you follow a particular system. People who are extremely entrepreneurial and do not like to conform to a predetermined formula should be careful about buying a franchise.
  4. Do you have a history of success in dealing and interacting with people? Your ability to interact well with your franchisor, other franchisees, your employees and your customers cannot be emphasized enough. A negative, critical franchise owner can be a detriment to the entire franchise system. You must have a track record of good relationships with
    employers, supervisors and fellow employees.
  5. Can you afford the franchise? One of the major causes of business failure is undercapitalization. While the franchisor will be able to give you a good idea of the start-up costs, sometimes these figures will vary due to leasehold improvement needs and other valuables. You will need enough money not only to open your franchise but to run it until it’s profitable. For some franchises, that may take a year. Remember, it’s better to start out with more money than you think you’ll need.
  6. Have you carefully studied the legal documents? Franchisors are required to prepare a document called the Franchise Disclosure Document. It gives you pertinent information about the franchise. It also contains the franchise agreement you’ll sign. This agreement will govern your relationship with the franchisor for the term of the contract. The disclosure document is a vital document. It should be studied carefully and discussed with your lawyer.
  7. Does the franchise you’re considering have a track record of success? Get to know the principal directors of the company—their business background and how profitable their franchise has been. Have an accountant review the financial analysis of the franchise. Is it a solid company? Also, examine how long the franchise has been in business. A startup franchise may offer the opportunity to get in on the ground floor. But the franchisor also might not have sufficient experience to fully develop the system.
  8. Are the franchisees generally happy and successful? The FDD will contain a listing of all the franchise owners. It’s worth your time to contact a number of them to discuss their experiences with the franchise. Has the franchisor followed through on commitments? Did the franchisees receive adequate training? Would they buy the franchise again? Is the business profitable? What advice would they give you?
  9. Do you like the franchisor’s staff? One of the most important elements of a franchise is the ongoing support and contact you’ll have with the franchisor. For this reason, you should feel comfortable with the people you’ll interact with for a number of years.
  10. Do you have a support system? Managing a franchise is a full-time job. It requires great sacrifices of personal and family time. For this reason, your friends and family should understand that you’ll have tremendous demands on your time.

 

About the Author:

Marisa Palmieri is an experienced Green Industry editor who's won numerous awards for her coverage of the landscape and golf course markets from the Turf & Ornamental Communicators Association (TOCA), the Press Club of Cleveland and the American Society of Business Publication Editors (ASBPE). In 2007, ASBPE named her a Young Leader. She graduated with a Bachelor of Science in Journalism, cum laude, from Ohio University’s Scripps School of Journalism.

1 Comment on "What makes a good franchisee?"

Trackback | Comments RSS Feed