11 Important Factors to Consider Before You Buy a Franchise

For would-be (or current) entrepreneurs, becoming a franchisee, especially for a successful outfit, seems like a shorter path to profitability. That said, the devil’s in the details — and there’s more to a franchise opportunity than upfront costs and prior successes.

We asked members of the Young Entrepreneur Council (YEC), an invitation-only organization comprised of the country’s most promising young entrepreneurs, the following question to find out what factors to consider when evaluating a potential franchising opportunity:

“What’s one often overlooked thing you should consider when evaluating a franchising opportunity?”

Here’s what YEC community members had to say:

1. Check for Proven Systems

“When you buy a franchise, you’re buying a proven business model. But if that opportunity doesn’t come with systems that work, then you’ll be flying blind. There should be systems for everything from payroll and marketing to client services and upsells. You also want to find out if training is included or if you’ll be left to figure out the system on your own.” ~ Kelly Azevedo, She’s Got Systems

2. Ask How They Treat Their First Franchisees

“It is important to track how the original founders of the company have treated their first franchisees to see if it is a right fit for you. Go and make the personal visit to the first group of franchisees if the company is not willing to let you meet them this is definitely a red flag. Remember, once you sign an agreement it is really hard and expensive to buy yourself out of one. ” ~ Derek Capo, Next Step China

3. Examine Earnings Potential

“It can be tricky to evaluate the profitability of a franchise, because you can’t rely on profitability from other franchise locations – that may be affected by location and a variety of other factors. Get a comprehensive list of the financials from other franchises, investigate how the successful ones became profitable, and find out whether other franchises have recently failed.” ~ Andrew Schrage, Money Crashers Personal Finance

4. Consider Coaching to be Critical

“One often overlooked, though extremely important, factor to consider when evaluating a franchising opportunity is whether the franchisor offers a well-thought-out, structured and proven coaching program. Great franchisors understand that their success hinges on each of their franchisee’s abilities to be entrepreneurial & savvy. Great franchises will invest in their franchisees’ development.” ~ SeanKelly, HUMAN (Helping Unite Mankind And Nutrition)

5. Make Sure they Have Already Succeeded

“Some franchises need specific talents or connections to be successful. Before you decide to take on a franchising opportunity, research who has already done well with that franchise. See if there are any common factors — and if you have the necessary characteristics, as well. ” ~ Thursday Bram, Hyper Modern Consulting

6. Acquire Territory Exclusivity

“My primary concern when I consider franchising (after the strength of the brand) is whether I can get exclusive territory. If that’s not possible for whatever reason, it makes it much tougher to build and defend a profitable niche.” ~ Erik Severinghaus, SimpleRelevance

7. Know the True Costs of Being a Franchisee

“I review many franchise agreements. There are often hidden fees in addition to the royalty payments, such as required marketing fees or training. Be sure you know the true cost of being a franchisee to make sure the franchise opportunity is the best one for you and your family.” ~ Doug Bend, Bend Law Group, PC

8. Look for Knowledge-Sharing Among Franchisees

“Any good franchise will align the interests of the franchise and the franchisees. One way to enhance your odds of success is to franchise from an organization that connects all of its franchisees. Because you will have territorial protection, you should feel free sharing with (and asking questions of) other peer franchisees. Their experiences will help put you on the right track.” ~ Aaron Schwartz, Modify Watches

9. Seek Advice From Existing Franchisees

“What do the company’s fellow franchisees think? It’s easy to get swept away in the great information the company espouses, but what’s it really like? I advise every potential franchisor to sit down with someone who has converted and ask him the tough questions. Existing franchisors should be willing to mentor newbies. Their enthusiasm should be contagious!” ~ Kuba Jewgieniew, Realty ONE Group

10. Analyze Market Opportunity

“It’s easy to get lost in the FDD numbers and lose sight of the big picture. The dollars and cents are important, but they’re also irrelevant if you find out a few months into owning the franchise that your personality doesn’t fit with the culture. Attend the “Discovery Day,” get a feel for the company’s values and vision, and make sure you mesh well with the people behind the brand.” ~ Nick Friedman, College Hunks Hauling Junk and College Hunks Moving

11. Get Comfortable With Company Operations

“When evaluating a franchising opportunity, you should determine if you are comfortable with the extent to which you can modify operations. Quite often, franchises have strict rules on how to operate the business — often not allowing innovative franchisees to explore new marketing strategies or product positioning. Make sure you are comfortable with what you won’t be allowed to change.” ~ Chuck Cohn, Varsity Tutors

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