Thinking about owning a franchise but not sure where to begin? We get that. It’s a tough decision. Based on new information released by the International Franchise Association (IFA), there are more than 800,000 franchises in the U.S. alone — that’s a big pool to choose from. Here’s some information that will help point you in the right direction when trying to figure out how to choose the right franchise for you.
Questions to Ask Before Buying a Franchise
Franchising is often viewed as an efficient entry into business. You pay the franchise fee that essentially serves as your entry fee, allowing you get started with your business — equipped with a proven business model, operating system, training, a marketing plan and support from the franchisor. But this is hard work, it’s a substantial investment and a commitment — with franchise agreements lasting in the scope of 5-20 years. That’s why discovering how to choose a franchise is a big deal. You’ll obtain a lot of information simply by doing your research about certain brands or industries. In fact, you can glean a lot of information from Googling websites and studying up on trends and good growth opportunities. Once you’ve narrowed the search, there are some questions you’ll want to ask to get the in-depth information needed to make a decision. The IFA provides a guide that includes many of these suggested franchisor questions:
- What are the startup costs other financial obligations? Inquire about the initial franchise fee, equipment costs, inventory, marketing expenses, and any other fees associated with starting and operating the franchise. Franchisors typically charge ongoing fees, such as royalty fees or advertising fees, based on a percentage of your revenue. Clarify the structure of these fees and understand how they impact your profitability. Find out if there are any deposits due for supplies or leases. When figuring out how to choose a franchise, you’ll also need to know what financial information they need from you. Most franchises have a liquidity requirement and a net worth requirement, designed to help your franchise unit stay operational until income and profits come in. The franchise may require a credit check, especially if you’re financing your investment.
- What support and training are provided? Find out what kind of training programs, operational support, and marketing assistance the franchisor offers. A strong support system can be crucial, especially if you are new to the industry or have limited business experience. If you’re joining a part of the service industry that requires specific training, find out how you and your staff are trained and if that training is covered or if there are additional fees. Find out who conducts the training and what their qualifications are.
- Are there any territorial restrictions? It’s important to understand your territorial rights and any restrictions on operating in specific locations. Find out if your location is protected or whether you’ll compete with other franchise owners from the same brand in your community. Understanding the territory and market potential will help you evaluate the growth opportunities for the franchise.
- What are the franchisee requirements and expectations? Ask about the qualifications, experience, and skills the franchisor is looking for in potential franchisees. Determine whether you meet the requirements and assess how well your background aligns with the franchise's business model. Many franchisors say there’s no experience needed because they provide comprehensive training, but having some business, sales or marketing experience will serve you well as an owner.
- Can you speak with current franchisees? Contacting franchisees can provide valuable insights into the franchise's operations, profitability, and overall satisfaction. Ask the franchisor for a list of franchisees to connect with and prepare relevant questions to gather their perspectives. It’s a red flag if the franchisor doesn’t include this as part of your discovery, but you can always find a list of franchisees and where to reach them in Item 20 of the brand’s Franchise Disclosure Document (FDD).
- What are the exit options and termination terms? Understand the franchisor's policies regarding franchise resale or transfer. Inquire about the conditions for termination or non-renewal of the franchise agreement.
- What is the growth strategy for the franchise? Learn about the franchisor's plans for expansion and future development. Assess their market research, competitive positioning, and marketing strategies to determine if they align with your own goals and aspirations. Find out how they intend to financially grow the business.
A Few More Items (in the FDD)
A big part of your due diligence is looking at the franchise's track record and reputation. Look for information on franchisee satisfaction, financial performance, growth potential and success rate. Once you’re in the disclosure process as a candidate, 14 days before purchase, you will receive a copy of the FDD. Within this document, there are 23 items that detail the franchise. While all items provide important information, there are a few to pay careful attention to.
- Item 3 discusses any legal disputes the franchise is involved with. Know what the problems are before you make a commitment.
- Item 11 discusses the obligations the franchisor has to you as a franchisee.
- Item 19 includes information about the franchisor’s financial performance for the previous year; it’s the only optional Item in the FDD.
- Item 20 indicates how well the franchise is growing with the number of units sold and if any have closed, in addition to including franchisee contact information.
- Item 21 includes the financial statements or essentially the franchise’s track record.
It can be overwhelming to sift through all this by yourself when figuring out how to choose a franchise that’s for you. Consult with a franchise attorney and an accountant before making any final decisions. They can review the franchise agreement, financial documents, and contracts to ensure that you understand all the legal and financial implications involved.
Partnering with a Strong Brand
When selecting a franchise, you want to choose a brand that aligns with your beliefs and goals, shows a great track record, and has growth potential. All arrows point to ServiceMaster Clean as a janitorial franchise opportunity not to be missed. Your partnership with ServiceMaster Clean means you’re part of a brand that’s been a leader in the commercial cleaning industry for more than 65 years, with 600 locations throughout North America. We are looking for motivated entrepreneurs to continue to grow with us. Now that you’re equipped with questions, we are more than happy to answer them for you. Let’s get started . Fill out the form and we’ll be in touch.