Things You Need to Know About Buying a Franchise

Things You Need to Know About Buying a Franchise

2020 is proving to be a volatile year for the economy, job market, politics, and more. Potential entrepreneurs looking for their next investment are wise to explore franchise opportunities since they are sometimes virtually immune to recessions

Is now the right time for you to explore buying a franchise? Read through this piece to see if it’s the right business option for you.  

Why Buy a Franchise?

Owning a franchise provides numerous potential benefits. Forbes wrote a whole article on this, but we list several here, including:

    • Less risk as you enter the startup phase
    • Clear investment expectation in terms of cash requirement and the potential return on investment
    • The benefit of built-in brand awareness
    • Training and operational processes, procedures, and policies are pre-defined.

Now, you may be looking for a step-by-step process for how to buy a franchise. As with most things, you should know that purchasing a franchise includes nuance, so you should leave space for that. The nitty-gritty details are where Raintree flourishes in our niche. That being said, there are some components you should consider as factors for success. 

Below is a list of helpful hints and tips for entrepreneurs who want to open a franchise.

1. Perform Due Diligence

It sounds obvious, but you would be surprised how many people take what is presented to them at face value. When buying a franchise, you don’t want to be “sold.” You want to enter into a business deal with a full scope of understanding and disclosure as a partner. You can enlist the help of others who have been through the process or who specialize in the buying and selling of franchises, and we’ll dive into that more later. You should do your part to review the documentation provided to you and pursue and identify information accessible on the internet, which is in abundance in this day and age. 

Between online research, the assistance of a supportive person or team, and requests for information you make directly to the Franchisor, you should be able to identify any potential red flags and accurately assess the financial health of the business opportunity you are researching. 

2. Know Thyself

Plato may not have been talking about owning a franchise when he coined the phrase “Know thyself,” but it applies here nonetheless. Not everyone is capable of entrepreneurship, and not every entrepreneur makes a good Franchise Owner. Try to think through some of these personal reflection questions to determine whether this is right for you.

      • Have you delivered results as an entrepreneur?
      • Have multiple people told you they see you as entrepreneurial?
      • Do you have the cash required to launch a franchise, not to mention the appropriate level of risk tolerance?
      • What sort of business works with your lifestyle?
      • What model suits your skills and interests while also aligning with market opportunity?

Let’s say you are presented with an opportunity to buy a franchise that seems like a great opportunity, but it requires more scheduling flexibility and expertise than you have. Do you take the plunge and try to plan for contingencies, or do you strategically research opportunities that meet your requirements? We would not recommend asking questions about franchise opportunities if you haven’t asked them first. 

3. Understand Why You Buy

Okay, this one dovetails slightly from our previous point, but we think it needs to be addressed directly in more depth. Having the desire to be a business owner, and identifying companies that fall in your price range is only a small piece of the puzzle. As we said, you should know yourself well enough to know what unique value you bring to the table in owning a franchise, and this knowledge extends to a strategic market position. 

For instance, did you know women are increasing in number as Franchise Owners? Why not leverage the position by looking for financing opportunities that might be unique to women-owned businesses? Further, what if you researched a company whose market is women but is owned by a man? What could you bring to the table as a woman buying franchises that could give you and your business an edge? 

4. Interview Other Franchise Owners

What better way to gain an in-depth understanding of what Franchise Ownership looks like than to speak to a Franchise Owner? We recommend spending some time accumulating general knowledge about owning a franchise from a current Franchise Owner, even if it is in a different industry. These conversations can yield helpful, generalized information about Franchise Ownership, lessons learned, and expectations.

If possible, we strongly encourage you to have a conversation with a current or former Franchise Owner of the company you’re considering purchasing. While some geographic market factors may leave room for nuance, they will provide a depth of insight that you can’t get anywhere else. Franchise Owners are a great source of information. Use this time to ask pointed, direct questions about their experience, recommendations, satisfaction, and success level.

5. Perform a Cost Analysis

State and federal laws vary as to the requirements of specific franchise contracts, so you will want to thoroughly understand what is required on your part in terms of financial contribution, capital investments, and varying costs and fees. Be sure everything is laid out and carefully defined in any written agreement you sign. Franchise fees can vary widely depending on the brand and what is included in the franchise package. Couple this with operational investments and ongoing costs, and you’ll need to ensure you have the cash outlay necessary to get up and running.

6. Enlist the Help of a Professional

As knowledgeable as you may be, enlisting the help of a professional agency can provide supplemental expertise and manage some details, which frees you up to focus on your strengths. Raintree has an extensive network of brokers, in-house sales, consultants, and marketing experts who are well-rounded professionals in the franchise space. You will be working hard and spending vast amounts of time and money in the initial start-up phase. Allow Raintree to research and speak into the nuance of segmented market availability and strategic digital marketing. 

Let’s Recap, Shall We?

As you know, there are no free lunches and very few guarantees in life. The level of return you may see when buying a franchise is contingent upon your knowledge, skill, entrepreneurial spirit, cash flow, due diligence, and ability to put forth the time to make it a successful endeavor. 

Franchisors have an interest in your success, which makes the agreement mutually beneficial. Therefore, it’s in your best interest to understand one another, the business model, the opportunity, how it aligns with your contribution, and engage support when you need it. 

Franchises are historically successful at least partially because they have a profitable model and process that is repeatable, which requires a spirit of entrepreneurship tempered with the desire to repeat what already works. 

You’ll still need to bring your business acumen and grit to the endeavor. If you’re ready to do that, it’s time to move to the next step. Call Raintree at 720.295.2744 today!

Featured Image: Shutterstock / Fizkes

What are Some Advantages of Franchising?

What are Some Advantages of Franchising?

Raintree Franchise Sales

Franchising provides benefits to both the Franchise Owner and the Franchisor. If you have a robust business model and are considering expanding, you may be interested in learning about the advantages of a franchise. 

Believe it or not, the current pandemic is also expected to increase the benefits of franchising by creating additional opportunities in the marketplace that foster the perfect environment in which to launch a franchise operation. We will cover many of the benefits of franchising, both typical and pandemic-related, below. 

Common Advantages of Franchising

Cash Flow, Risk, and Return

Franchise Owners are required to invest their money to fund the new endeavor and to manage the associated risk. Franchisors, on the other hand, require very little out-of-pocket investment, which frees up your cash. And that’s always a positive! Also, because your investment is insignificant compared to that of the Franchise Owner, your investment is substantial. You reap the benefits without assuming the associated financial risk. 

Reduced Contingency Liability

It is generally the Franchise Owner’s responsibility to sign leases, acquire financing, and perform additional tasks that involve risk. Therefore, the franchisor can enjoy the benefit of expansion with limited direct and contingent liability. The same is often true with the vicarious liability that comes with employee issues that put the business at risk for sexual harassment, workplace injuries, EEOC violations, and more. 

Lean Start-Up to Scale-Up

Scaling up is achieved far faster and without the expensive capital investment on the franchiser’s part due to the Franchise Owners’ ownership and accountability. Your company expands without the increased overhead costs of additional employee hires and the other expenditures previously discussed. Also, Franchise Owners tend to operate at more significant profit margins for those that are Franchise Owner-controlled as opposed to company-controlled. Franchise Owners who invest their own money and assume a more significant risk are more motivated to engage and put forth the effort required to achieve success. The same remains valid with international expansion. 

Better Performance With Less Oversight

With the right onboarding and training process, Franchise Owner-owned units often perform better from a profit margin standpoint than company-owned. Still, they frequently have tighter operations and excellent quality control. This allows you to maximize your bandwidth and focus on other areas. Further, the franchisors tend to stay longer than those that run company-owned units. 

Marketing and Brand Awareness

Franchise Owners often contribute to a common marketing and advertising fund over which the franchisor manages. This allows you to maintain control of the brand and increase awareness while leveraging Franchise Owner capital. You can direct the overall branding effort and watch your company grow without substantial investment, or you can pursue franchising with company-owned growth and combine strategies. 

Opportunities Arising From the COVID-19 Pandemic

Recent changes in the economy and job market due to the COVID-19 pandemic present additional advantages of franchising. For instance, many people have lost jobs, or have quit or retire early because they want to be more in control; business ownership allows this. Some of these people have retirement accounts and other investments that provide the funds needed to pursue such an endeavor.

While it is true that some owners have gone out of business due to extended business closures, this creates more inventory in the commercial real estate market, which means there are deals. The Small Business Administration will want to support entrepreneurs to get the economy humming again, so incentives should be expected there. Besides, the pandemic breeds innovation as business models shift from in-person to mobile or incorporate activities such as curbside service. It is the perfect opportunity to take advantage of the unique opportunities that come with an unfortunate situation. Businesses such as pet care, education, and childcare are all positioned for disruption and innovation. 

The advantages of a franchise are numerous, and current events can actually contribute in a positive way. If you want to hear from some of our customers about their experience, you can do that here. If you are ready to take the next step, contact us. Let’s start a conversation about what makes sense for you. 

 

How to Franchise a Business

How to Franchise a Business

how to franchise your businessIf you have a proven, profitable business model that you believe would be replicable and sustainable in other markets, then you may be a good candidate for franchising. The world of franchising is a different beast than that of owning and operating a business.

Many successful business owners discover they do not have the bandwidth or the expertise to successfully navigate franchising on their own, which is why we have put this “How-To” guide together as a good starting point. As businesspeople supporting other businesspeople, we hope you find the information helpful.

Step 1. Ask Questions

If you have not done so yet, you should ask yourself the following questions:

  1. Is my current business model one that can be franchised? 
  2. Does my current strategic plan support franchising?
  3. Will franchising a business leverage my skills and abilities or detract from them?

Take some time to review your current strategic plan and determine where franchising your business lies with your current goals and objectives. Is franchising part of your growth plan, or is this a newer area of interest that may conflict with your current strategic initiatives? 

Are you interested and prepared in leading the initiative, and, if so, does that decrease your bandwidth in other important areas of the business? Evaluating your business and ensuring franchising has a specific place in the strategic plan (along with allocated resources) will help reduce scope creep, align resources, and foster collaborative buy-in from your stakeholders.

 

Step 2. Develop Operations Training, Manuals, Policies, and Procedures 

Training materials, manuals, policies, and procedures are not deliverables that should wait until the sale of a franchise is complete. While these items do not replace marketing material, they are part of the sales process. 

Presenting these types of materials to potential franchisee prospects allows you to get into the nuts and bolts of the process. As you move forward, they become legally binding reference guides for established franchisees and methods of quality control. These things also limit your liability as a franchisor.

 

Step 3. Meet All Legal Requirements 

Selling a franchise requires certain documentation to be filed. Filing requirements vary by state, so you will want to be clear what the laws are in your state as well as in the state the franchise will operate if it is different from its point of origin. 

This documentation is in addition to the typical state and federal regulations and compliance requirements to which businesses are legally responsible. Preparing legal documents and state filings can be cumbersome, and it is best to have legal representation to help you along, whether that is through private counsel or leveraging the legal team of a contracted franchise development resource.

 

Step 4. Create and Execute Your Marketing Plan and Tools

A good sales process is a replicable one, and part of this process includes a marketing plan. We leverage digital formatting in our marketing strategy and include things like videos and web pages with SEO optimization

At Raintree, we focus on digital formats as a function of marketing and rely heavily on them to communicate your message. Digital media is vital to the sales process, and it can also be useful for training new owners and their teams.

 

Step 5. Sell, Sell, Sell

Finally, you’re ready to close the deal! You have determined franchising is right for you, you’ve performed your due diligence, ensuring you are covered legally through documentation and state filings and developed your marketing plan. Now the right prospects should be identified, vetted, and engaged. 

Raintree makes this happen in several ways:

  1. Established relationships with business owners looking for franchise opportunities
  2. Relationships with numerous brokers where volume sales can occur at discounted rates
  3. An internal sales team skilled in franchise business development and sales

 

Raintree consists of seasoned partners who are skilled at working with business owners to determine franchise ability, coach them through the process, ensure all legal requirements are met, and to help market the franchise and close the deal.

Hear what satisfied Raintree clients have to say about their experience or contact us for more information.