By Steve Murphy, president of Franchising at Winmark Corporation
There are many resources available, online and offline, for finding the right franchise. Just be careful that you find the right resource and understand the limitations of each. And remember, for all the resources available, the tried and true method of finding the right franchise still comes down to doing your own homework, talking to existing franchisees and checking out the franchisor thoroughly by analyzing a few key metrics.
One of the first places people search for the best franchise opportunities is the internet, specifically via Google search or some other search engine. It is important to realize that the results that appear will be both advertisements (paid for by franchisors) and generic (organic search results based on relevancy). On Google specifically, the top four results today are paid placements by franchisors looking to get in front of franchise candidates (the right hand bar results no longer appear on Google – instead, they have the top four results as listed advertisements and several more paid for results at the bottom of the page). That does not mean these are not the best franchises – Winmark utilizes Google AdWords as a means of getting in front of candidates as many other franchisors do as well – it simply means that these results are the effort of bidding on and winning certain search terms you may be using to find the right franchise. Many of these search terms are fairly generic, such as ‘best franchises’ or ‘best franchise opportunities.’ The more specific you can be in your search term, the better your paid and organic results will match your desired franchise (for instance, ‘best kid’s franchise’ if you are interested in focusing on a business servicing children’s needs.)
Another common approach to finding the right franchise is to utilize one or several of the many franchise portals that exist on the internet. These portals are aggregators of multiple franchise concepts that pay them an advertising or slotting fee to be a part of their site. They are, in essence, an online franchise catalogue for prospective franchise candidates to help them in finding the right franchise. Some of them offer content on franchising, some offer franchisee profiling to help you find the right franchise, and some even offer grades for franchisors to help you identify the best ones. The important thing to realize as a franchise candidate is that in most cases all of these franchisors have paid a fee to be a part of this site. You will only see a small sampling of the 3,500+ franchises that are available to you as a future business owner, and you may not find the perfect franchise due to the limited scope of participants. Don’t get me wrong, portals can be an effective means for finding the right franchise, but they are subjective in nature in that you have to pay to play as a franchisor. Many of the top franchisors will not be found on these types of sites as they do not need to use them as a means to grow. Utilize them as a tool in your arsenal, but by no means should you think of them as a complete solution for you to find the perfect franchise.
An offline resource for finding the right franchise is the business or franchise broker networks that are available to you. There are several franchise brokerage companies to choose from, giving you the option of finding the right person to work with to help you in your endeavor. These are great resources with people who are familiar with franchising as a business model and can help you get a better understanding of the franchising world and the different types of franchise opportunities that exist. However, again you are dealing with a very subjective medium. Franchise brokers make their money from commissions or finder’s fees from the franchisors they represent. In other words, the only franchise opportunities most brokers will present to you will be those for which they have agreements and will receive commissions should you move forward and sign a franchise agreement. If your desire is to look at all franchise opportunities in a specific business segment, realize that a broker may not introduce you to every franchisor in that segment and that more homework on your part may be needed. It is important to ask a broker who they represent and how they work before you begin that relationship.
There are also several trade magazines, websites and periodicals that are available in helping you find the right franchise. These range from complete lists of franchisors to news and information on the latest, hottest, fastest growing franchises. All are wonderful resources to give you a better idea of the landscape of franchising. However, just because a franchise is on someone’s ‘hot list’ does not mean that is the right choice for you. Franchising is full of hot trending businesses – often times seeing explosive growth in specific segments that cater to the masses for a short period of time. You can see this in the fitness, food and service industries specifically; where today’s hot franchise is tomorrow’s dead fad. As a franchise candidate, do your homework on the concept and be sure you are comfortable that it will be a business that will give you a return both in the earlier years as well as the later years. You are building an asset to sell one day – which means that what you invest today, you want to get back plus some multiple of that return when you transition out of the franchise.
The best advice any franchisor can give to a franchise candidate is to utilize all the resources available to find the right franchise, but at the end of the day, do your own homework. Nothing beats due diligence in finding the perfect fit. Discover what you are passionate about, find the right franchise servicing this industry or opportunity, and do your research on the franchisor. The best way to accomplish this is to thoroughly review their Franchise Disclosure Document (FDD), specifically their Item 19 Earnings Claim, to see if their franchisees are making money. Then call several franchisees and ask them specific questions about their level of success, their level of happiness and what they like and do not like about the business and the franchisor. Finally, take a look at how many franchises are renewing at the end of their term – this will be a great indicator on what they think of the business, the franchise and the franchisor. Any franchisor renewing 90+% of their franchisees every 10-year term, has a long standing track record of success in a business that is viable, and is not susceptible to downward trends is a good place to start.