We were featured on Best Franchise Networks’ Podcast – check it out!
Finding the right franchise means doing a lot of due diligence. And if you are starting your journey of investigating franchises, this article can help.
When franchising, the devil is in the detail, and while one franchise might look fun and friendly on the outside, on the inside, it might have high overhead costs and ongoing fees. Consequently, many franchisees feel like they bought themselves a job. However, with some proper due diligence and asking intelligent questions, you can indeed find the right franchise!
Below are ten questions that are strictly for you to ask yourself. These questions will help you determine an industry that suits your goals.
In full disclosure, I am the franchisor of Klappenberger & Son. We are a painting and handyman franchise, and at the bottom of the article, I discuss the industry and what separates us from other franchises.
In an owner-operated scenario, you are putting together your little empire. You wear many hats in the beginning stages, but none require you to do the physical work. The involvement of the owner-operated franchisee is to grow the business through leadership. Over time your role can be reduced to semi-passive income.
For example, a home inspection or blind installation franchise will most likely require the franchisee to inspect or install the product. This type of franchise typically will have higher margins, but it is slower to grow.
Because when you are working in the field, you are doing little to grow the business.
If you are looking at a franchise that involves you in the actual service, you may have bought yourself a job.
Passive income is certainly appealing for many reasons. However, it will certainly require staff to run the franchise. Here is a list of some industries which advertise as passive businesses.
Storefront franchises, like restaurants and beauty salons, have limited seating capacity.
If you want to scale a storefront business, you must buy additional storefronts.
On the other hand, home-based franchises give you a specific territory. In this scenario, you or your staff are going to the customer. This gives you control over deciding if a job is worth the drive.
FYI – Home service businesses have widely different territory sizes, even in the same industry. For example, most painting franchises offer territories of 100,000 – 250,000 people. Klappenberger & Son, a painting and handyman franchise offers between 500,000 and 800,000 people. Please read Item 12 in the Franchise Disclosure Document for information on the territory size and restrictions.
Limited Products or Services
If scalability is vital for you, look for franchises that offer multiple services. For instance, some franchises only patch drywall. While others, like Klappenberger & Son, offer drywall patching, painting, and remodeling. The more services you can offer, the more opportunities there are to grow.
These franchises are great for someone who wants seasonal work. Other franchises are part-time endeavors. They will give you the flexibility to focus on other things in life besides work.
Most home-based franchises come with no initial customers. Getting these franchises up and running takes time and commitment. Therefore, a part-time approach will not be sufficient.
Even if the franchisor has a robust marketing plan, developing a solid customer base still takes time.
I’ve never heard a business owner say they worked less than 50 -60 hours per week in the growing period of their business. Once a business becomes established, and has a good management system in place, then, yes more free time is possible.
I wouldn’t go shopping for a house without getting pre-approved for a loan. The same logic is valid for buying a franchise.
Franchises cost anywhere from a few thousand dollars to millions. Check with your financial advisor, bank, or SBA to determine your options. I recommend that you invest no more than 50-70% of what you are capable of investing. Why?
First, not maxing out your credit will give you peace of mind.
Secondly, it is crucial to have a reserve for emergencies.
It’s fun to see people socializing at a Starbucks, especially if you own it! Storefront franchises where customers gather are undoubtedly an attractive lure for franchisees.
But often, the actual properties are leased and not owned and generate high fixed costs.
Consider a $7,000 per month lease would cost $840,000 over ten years), plus annual remodeling fees can reach six figures.
Secondly, a competitor (or two) can easily move across the street. Would having a competitor negatively affect your business?
Having customers come to you sounds excellent for so many reasons.
First, it saves you time.
Secondly, it’s exciting to have people who want to come to your place. They can eat, drink, and socialize for business and pleasure.
However, as with all good things, there is a downside. People will only travel so far for your product or service. If you own a printing company, for example, there is a finite distance that a customer will drive. Storefront businesses have geographic limitations.
When your service or product travels to the customer’s location, it is up to you to consider what is too far. This puts you in the driver’s seat to have more control of the growth. In addition, you might be less affected by competition.
Having employees is an important question. You need bodies to get there if you want a scalable and valuable franchise.
I understand you are looking to buy and not sell a franchise; however, one day, you will likely want to sell. Selling a business is one of the greatest benefits of starting a business. Somebody believes that what you created is worth a pile of money.
You might not have much to sell if you wear all the hats in a service-based franchise.
The less the seller is the focal point, the more desirable the business will be to a buyer.
Having a staff operating different responsibilities allows you the freedom you ultimately wanted from the start. However, you need to consider the tasks that come with a staff. In addition to kissing many frogs, you have to take time to hire, train, replace, and repeat.
People are messy, and you will need great patience and leadership. If you are up to the task, there is potentially a big pot of gold, many stories, and battle scars in store for you.
Grocery Stores, liquor stores, cosmetics, and home services are among the most effective franchises during a recession.
Moreover, the businesses that are hardest hit during a recession all have storefronts.
Who would have thought to ask this question before COVID? Not me. However, we are now in different times.
I can tell you firsthand that painting and remodeling were affected negatively for about two months. The remainder of the year was quite strong.
Bloomberg has an article entitled
Whatever industry you are looking into, please do your due diligence.
Great question. So far, the first 9 questions have given answers to which industry might be worth exploring or avoiding.
Regardless of how you answered the questions, you should be pointed in a particular direction.
So, how do we find the right franchise in a particular industry? My franchise, Klappenberger & Son, is in the painting and handyman industry. The evaluation process I am going to show you apply to any industry.
Every franchise has a document called a Franchise, Disclosure Document, or FDD for short. The FDD is divided up into 23 Sections called Items. Every franchise has the same information in each section (Item). For example, if you want to compare franchises’ royalties and other fees, you will find it in Item 6 in the FDD.
Consider this: if a franchisor charges 1 to 2% more than another franchise, it will likely add up to over $100,000 during the contract’s life.
In other words, if your gross sales are $1,000,000 per year, each percent is $10,000 out of YOUR NET PROFIT.
As you take a close look at these comparisons, it is easy to see that there are vast differences in:
Guarantee: No one else offers a Franchise Guarantee, and ours is a doozie!
If you follow our system and fail to gross $500,000 in your first 20 months, we will refund your franchise fee in full.
Training: In addition to our 4 weeks of training, we offer 2 additional weeks of training in your territory. This shows a commitment to you that no other painting or handyman franchise offers.
Decreasing Royalties: Klappenberger & Son’s royalties drop to 5% after the franchise reaches $700,000 in gross sales. Furthermore, it decreases to 4% after $1,000,000 gross sales per calendar year.
It is not a sexy industry. Telling your friends that you own an Acme Burger Joint sounds so much cooler than a painting and handyman company; however, it costs $500,000 and generates $115,000.
“I hate to paint, and I am not handy!”
Exactly, and you are not alone. More than ever, fewer people can make repairs and are willing to tackle painting projects. It makes the industry recession-resistant.
“I don’t know anything about the handyman or painting business!”
Most of our franchisees had no previous knowledge before owning a franchise. In addition, all of our franchisees came from white-collar jobs.
“If I buy a franchise, do I get leads or estimates provided to me?”
Our website provides our franchisees with leads. Many of our franchisees get multiple leads every day. Typically organic lead generation takes a few months.
To have a successful and robust business, additional marketing systems will be necessary.
We were featured on Best Franchise Networks’ Podcast – check it out!