Franchising 101: How to Buy a Franchise

According to FranchiseConsultants.com, more than $1 trillion in products are sold annually through franchises in the United States. That’s why franchises remain one of the fastest growing segments of the American economy.

Today, there are more than 3,000 franchise concepts available in more than 50 industry segments, with 650,000 individual franchise outlets up and running.

What should you know if you want to buy a franchise? How easy is it to sell a franchise? Does it cost you anything to use a broker? Are so-called “glamorous” franchises more profitable than others? Is franchising less risky that starting your own business?

To find the answers to all of these questions, we interviewed Geoff Batchelder, who runs franchise consulting firm Compass Franchise Group, to get the scoop.

ISBB: What’s the best type of franchise to buy?

Batchelder: Our goal is to find an opportunity that will meet the specific needs of each individual we work with. To do this effectively, we first have to learn what those needs are. We will ask a series of detailed questions, such as:

  • What are your reasons for wanting to own a business?
  • What hours do you like to work?
  • Where do you want your business to be located?
  • How do you feel about managing people?
  • How much capital do you have?
  • Will you have partners?
  • Do you want to build multiple units?
  • Will you be involved on a full-time or part-time basis?

These are just a few of the many issues we’ll discuss with you over the course of our consultation process to help you buy a franchise or to sell a franchise. We can usually match our clients with a few opportunities that have characteristics consistent with the ones they’re looking for, saving them time and effort in the process. Sorting through the over 3,000 franchise business opportunities can be a long, confusing process.

How much will I make if I buy a franchise?

This is one of the first and most often asked questions we get. The hard truth is that it’s impossible to guarantee a certain return from a business investment. The good news is that with an established franchise system, you have many examples to get a picture of what your business might be able to earn.

But beware that not all earnings claims are equal. You need to study these in depth and dive into the details so that you fully understand where the numbers came from and what they really mean.

What are the different types of franchises?

There are four levels of franchising. It’s best to consider all aspects of each level before deciding which is the best opportunity for you:

1) Single-Unit Franchises – A franchisee has the right to operate one franchise unit. Most franchisees enter the world of franchising this way to understand the system before taking on more units.

2) Multi-Unit Franchises – The franchisee acquires more than one unit of the franchise, usually at reduced franchise fees. The risk can be lower because the franchisee can take advantage of economies of scale: by spreading fixed costs across multiple units, the locations may be more successful. A good sign of the health of the franchise is if many of the franchisees are multi-unit owners.

3) Area Development Franchises – This license usually grants the franchisee the right to open a certain number of franchises in a given area. There is usually a production schedule where the franchisee must open a certain number of franchises during a certain period. The franchisee has an exclusive area where no other franchisees can be allowed to open a franchise.

4) Master Franchises – A Master Franchisee has the rights to a larger area than that of an Area Developer. In addition to opening franchises at a much reduced franchise fee and royalty, the Master Franchisee can also sell unit franchises, multi-unit franchises, and area development franchises to others and usually receives a part of the royalty and franchise fee paid by each franchisee.

Will I have a protected franchise territory?

Yes. In most franchise systems, you’ll have some type of protected territory. It’s very important to make sure you understand how it’s defined and make sure that what has been communicated to you verbally is also spelled out in the franchise agreement. 

Restaurants typically have small territories (3-10 miles), while service businesses will usually have territories that are based on the number of households and businesses, so in a densely populated area, it could be geographically smaller than a territory for the same franchise in a more rural area. Some franchise systems do not have protected territories, so that could be good or bad depending on the type of business.

For more advice on franchising throughout North America, contact Geoff Batchelder at CompassFranchiseGroup.com.

About Gil Zeimer

Gil Zeimer is the Creative Director of Zeimer's Advertising Shoppe. As a consultant with 25 years of advertising and blogging experience, he is a Mad Man who works with businesses large and small. Read his marketing musings at www.zeimer.com.
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2 comments
Ray
Ray

Franchising is a proven way to reduce some of your risks when starting a new business. However, buyers should still do their due diligence before moving forward as all franchises are not created equal and there is no way to eliminate risk completely when starting any business. If you find a particular franchise concept you feel might be a good fit for you I would advise contacting existing franchisees and ask them to share their experiences with you and if they would do it all over again. If you are seeking to research top rated franchise for sale in the USA and beyond visit:  http://www.topfranchisesusa.com 

 

Ellen Rohr
Ellen Rohr

Good info! Note that a franchise arrangement doesn't ensure your success - you do.So, build a winning team right out of the gate. You can do everything. Be willing to charge what you need to charge according to your Budget. Be clear about your intention...what do you want from this business? Set goals and have fun with them. Be obsessive about cleanliness. Clean is always good. Dirty is always bad.Thanks for the platform! Keep up the great posts. Ellen