10 Truths to Know Before You Buy a Franchise

1. Semi-Absentee Concepts Don’t Exist

A lot of franchise companies will market concepts as semi-absentee, but we firmly disagree.

Yes, it’s possible to eventually after years of building a team and foundation for your business, that you can hire an operator who oversees things for you. But when you buy a franchise on day one (and invest a lot of money or take on debt to do so), you will not be comfortable just hiring an operator and letting them take care of it (nor will the economics be favorable to you)

So be prepared to actively operate your franchise on day 1.

‍

2. Franchising is a Spectrum

Franchises are touted as proven business models. But “proven” is a relative term.

Every franchise has to start at the same spot: with location #1, so there’s nothing wrong with being an emerging brand. But it’s important to note that the burger franchise that’s 1 year old is completely unproven compared to a McDonald’s.

Regardless of the industry of a franchise you are looking at, the same framework applies - the newer a franchise is, the less locations open, the shorter operating history of the executive team…the less proven the business is, and the less dialed in the franchisors operating playbook for you will be. 

If you buy a new franchise, know the risk you’re taking, and expect there to be bumps in the road with the franchisor.

Lastly, while there are certainly great franchises that come out of the gate strong - such as a Crumbl Cookies, OrangeTheory, Club Pilates, etc. - those are the exception, not the rule.

‍

3. 95% of brands aren’t worth your time

There are 3,000+ active franchises in America, and hundreds of new brands kicking off franchising every year. 

Despite that high number, we believe a vast majority of them aren’t worth your time or money. Some of them are simply out of reach, either financially, or competition wise. For example, tier 1 brands like McDonald’s, Domino’s, Planet Fitness, etc. will be very difficult to break into as a first time owner. 

This is why many 1st time buyers default to emerging brands, which is higher risk, but also where there is opportunity to buy a territory in your market. 

Of these emerging brands, again, the vast majority are simply not demonstrating the proof of concept to justify the investment sizes.

However, there are still quality emerging brands out there, and we spend our time researching, aggregating data, talking with franchisees and industry colleagues, to constantly gauge how emerging brands are performing and developing.

‍

4. The Rookie Paradox

It’s no secret that you will likely want multiple locations with any franchise to earn your desired income level. 

But as a 1st time owner aka a rookie, your risk goes way up with the more territories you buy up front.  It’s not uncommon for a 1st time franchisee to get excited during the diligence process, buy a bunch of territories up front (which cost tens of thousands per franchise location), before they even truly know if they’re going to enjoy being a franchisee, and if the brand lives up to the image they have of it in their head.

‍

5. You can test-drive a Franchise

Piggybacking off of #4, there are ways you test drive a franchise! If you’ve never owned a franchise, this is highly recommended.

It’s very easy to romanticize business ownership. But before you quit your job and take on an SBA loan, try to work in the franchise that you are considering, even if it’s only for a weekend!

In fact, Culver’s, one of the most successful franchise with a 98% success rate over decades, requires ever prospect to work in a restaurant for a whole week before they can sign a franchise agreement.

I suspect this has slowed their growth at times…but it’s also a great way to filter for people who truly want to become an owner.

‍

6. Franchisees are Your Best Resource

This is especially critical. Franchisees of a given brand will always be your best resource. We won’t be your best resource, another company won’t, the franchisor will not either. 

Franchisees of a brand have already made the investment. They have made the leap. They have verifiable financial information that you can actively uncover. 

Talk to as many franchisees as you can!

Pro tip: start with the franchisees in the northeast, they’ll tell you how they truly feel far quicker than the others 😜

‍

7. Soft Skills Matter

Franchises can teach you how to run the business, but they often don’t teach you how to be a business owner.  

We’re a big fan of the empire builders in franchising. It’s easy to see examples of people who own 3, 5, 10+ franchises and think with just a little hard work, you can be there too. 

While working hard is absolutely a requirement, it’s worth noting how critical “soft skills” are to attaining that level of success.

To become a multi-unit owner, you’re going to need to recruit a team, motivate and manage that team, appease customers, vendors, and so on. 

This all takes varying forms of leadership, emotional intelligence, salesmanship, collaboration, and more. 

If you’ve been in a leadership position, or even in a team setting, getting your first taste of it as 1st time business owner is a recipe for difficulty at best, and disaster at worst.

We will be honest with candidates who we feel need more experience before diving into franchise ownership, but self-analysis is also encouraged. 

‍

8. You Should Absolutely Work with a Franchise Attorney

A good franchise attorney will be able to evaluate the FDD, and your franchise agreement and tell you where the red flags are. A non-franchise attorney will miss red flags, and will create “false flags”, meaning they will drum up concerns with routine clauses and items of franchise agreements. 

So if you’re thinking about using a friend, relative, etc. as your legal help simply because you’ll get a discount, you may cost yourself far more money in the long run!

Note: we are friends with the Founding Partner, Adam Wasch at The Franchise Firm if you are in search of franchise legal counsel, however we have no formal business relationship with his firm.

‍

9. Remember the Rules, Not the Exceptions

We mentioned earlier that some brands like Crumbl, OrangeTheory, seem to have taken off like a rocket ship since their early franchising days and never looked back.

While this does happen from time to time, it is far more common for brands to sell a bunch of new franchises, use that selling momentum to generate FOMO and sell even more franchises, and ultimately not live up to the hype.

Meanwhile, there are people who paid hundreds of thousands of dollars to reserve their territory for a business that was ultimately unproven.

‍

10. You Can Be Successful With Franchises

If you’ve made this far, you’ve hopefully learned a lot! We hope it shows you that franchise ownership isn’t all sunshine and rainbows.

But with that said, know that you can be successful in franchise ownership with the right brands that match you’re skillset and what you’re looking for.

Knowing the 10 truths, and following best practices, will allow you to put yourself in the best position as a new franchisee. 

‍

‍