How To Choose a Franchise Industry

The Great Resignation is upon us as millions of people are looking for new opportunities to actualise their potential. With this, some franchise industry trends on a global scale indicate that franchising is quickly becoming the go-to business model due to its elegance and simplicity as well as scalability and proven profitability.

If you’re one of those people who are looking into franchising and you have no idea where to begin in terms of how to choose a franchise, then this post is for you. We cover some fundamental aspects and critically important questions you need to ask yourself as you get started with your research and due diligence process. Let’s dive in.

Choosing the right franchising business opportunities for you

Franchise opportunities are all around us. It’s only a matter of looking a bit deeper into the market segment that you’d like to target and determining the answers to some tough questions. With this in mind, here’s what you may need to consider as you begin on your journey towards franchising and choosing a franchise industry.

Ask yourself some tough questions

As a starting point, before you even consider selecting a franchise, you need to spend some time introspecting and really deeply determining what your goals, strengths and weaknesses are. When approaching this task, it’s important to be logical and not emotional. The decision you make now will be your commitment for the foreseeable future.

As a result, you really need to know yourself and where you stand now so that you can reasonably predict your levels of success and satisfaction with your future franchise business over the coming years. Hence, ask yourself tough questions and don’t be afraid to lean on the support of your loved ones. Let them help talk you through where you may find hindrances and where you could excel.

Research markets before you research franchises

It’s tempting to want to start your research into franchises directly. There are literally thousands of options to choose from. However, you need to think about the industry as a whole and research it first extensively. This will involve looking into growth opportunities, trends and statistics, market share, the target market, scope for scaling and business development and expansion, and so much more. In turn, this will help you gain a wider understanding of the market before you proceed to niche down into a particular sector and then niche down even further into a particular franchise opportunity.

How much risk are you willing to take?

Finding a franchise is one thing. Committing to it takes the game to a whole new level. Remember that franchise opportunities are a long-term game. You’re in it for the next 5 to 10 years at the very least. So you need to be committed.

You also need to figure out the risks involved when buying a franchise. Often, the best franchise to buy is a middle ground between a low-cost and a high-cost franchise, as well as one that requires a moderate amount of risk to give you better returns on your investment. Furthermore, think about the long-term plan. If your franchise business is successful, do you think you would consider expanding and purchasing other new franchise units and expanding the territory of your operations?

What are the rules and restrictions?

One thing all successful franchise businesses have in common is a set of regulations that govern the best way and practices for running the franchise business. It’s advisable to study as many of these rules as possible so that you’re better prepared in terms of what your rights and responsibilities as a franchisee will be.

What levels of involvement can you commit to?

The best franchises to start will depend on every individual person’s goals, aspirations and unique personal attributes. However, the level of involvement is highly important in determining how to choose a franchise industry and what to look out for. A restaurant or hotel and accommodation franchise will require much more hands-on supervision than say a travel franchise or a franchise that you can run from home. Think about how many hours you’re willing to put into your business. Determine what kind of work-life balance you’d like to achieve and go from there.

Identify your financial capacity

The best franchise investment for you is not necessarily the most expensive one. However, you need to be financially prepared for the capital requirements that are involved in purchasing the rights to run your own franchise business operations.

To get started, you need to know that there is an initial franchise fee. Then come the liquid capital requirements and ongoing royalties. Further to this, there’s usually a marketing and advertising fee that’s pooled together from all franchisees to ensure brand consistency and consistent marketing efforts.

Once you put all these figures together, you need to also consider consulting a lender to help you come up with the funds. In many cases, you may be able to get up to 70% of your investment requirements and you need to come up with the remaining 30%.

There’s also the need to develop a business plan which you’ll need to present to the lender and this will include financial projections and forecasts. All this takes time to put together and you need to be on solid ground when you’re determining your financial capacity.

Interview the franchise owner and existing franchisees

Now that you know how to find a franchise, and you’ve possibly settled on a couple of options, it’s time to speak to different franchisors and some of the franchisees in their network. Don’t hesitate to ask as many questions as you need to in order to get as clear a picture as possible. Consider asking about their operations, systems, processes, procedures, business model, expected levels of profitability, time frames for breaking even, royalty payments and everything else in-between. A solid franchisor will be able to answer these questions and put your mind at ease.

Create a shortlist and do a cost/benefit analysis

Doing a cost/benefit analysis will help you decide what’s the best franchise to own. This type of analysis looks at absolutely all the pros and cons of a franchise business to help you determine if this is the route you’re willing to take. Analysing each detail will help you gain much more clarity.

Remember that nothing in life is perfect and neither is the franchise business model. While many people may expect easy money to come to them, in most cases, your success will be highly dependent on your efforts. So, be clear with yourself about what you’re willing to put in, what is being offered to you and then decide on the right option for you.

Read the FDD closely (especially the fine print)

Finally, you need to read the Franchise Disclosure Document and the Franchise Agreement like a lawyer. In fact, you may want to use the services of a lawyer to help ensure that your back is covered from every possible angle. Some aspects to consider include being fully aware of your rights and obligations. In addition, look at the total cost of the business operation which you’re purchasing.

Also, consider your exit strategy in the event that you want to retire or sell your business to someone else. And operationally and procedurally, find out what training and support are provided to ensure that you can hit the ground running.

In conclusion

Franchise industry statistics are increasingly pointing to the rapid growth of this business model. It’s elegant and attractive and it offers much scope for growth in the future. However, franchise ownership requires commitment and dedication to your craft and business, just like any business would. Before you get started, it’s crucial to deeply understand the intricacies of the industry and market, as well as your ideal customer, so that you can make the most informed decision for yourself.