1. What s hot in franchising right now? 2. The advantages

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2 Starting your own business is one of the biggest decisions you will ever make, and it s a decision that calls out for professional advice and guidance. As a FranNet franchise broker, I advise hundreds of people each year about the advantages that franchising offers entrepreneurs, and work with clients to understand their goals and passions in order to match them up with businesses that offer them the best odds at success. Best of all, the service is free to you. My most important advice: Figure out your ideal business model and critical criteria first, then focus your research on a specific franchise concept and investigate it thoroughly before you invest. Don t let excitement drive you to a quick decision that will legally bind you to a franchise system for years, and which can have huge ramifications on your financial well-being positive or negative. I m happy to help. Feel free to give me a call at for a free consultation. Here are 10 questions that people ask about how to pick the best franchise. The truth, as you ll see, is that there is no one best franchise. There are franchises that are best fits for you. I d like to help you find them, but here is some advice to guide your research. 1. What s hot in franchising right now? Service franchises are very hot, both those focused on business-to-business sales and business-to-consumer. There are a lot of reasons. Service businesses can often be run from the home of a small office, so you don t have the huge bricks-and-mortar expenses that come with a retail business, and there tends to be much lower overhead. There also tend to be higher profits and a quicker break-even point for the business since you don t have as many upfront costs. The flip side is that you need to be ready to market yourself, because nobody is going to be walking through the front door. In terms of specific industries, here are a few that are growing fast: Home services: Anything related to homes is very big. Baby Boomers are beautifying their homes, either with plans to sell and downsize, or so they will be able to enjoy their homes more in retirement. Senior care: Baby Boomers, and their parents, are driving this trend. People are looking for ways to maintain their independence and stay out of assisted living facilities and nursing homes, and senior care businesses that provide in-home care and aid are flourishing, but be aware that this is now a very competitive industry. Mobility franchises are finding a hungry market knees may be getting creaky for many older Canadians, but they still want to be active. Marketing support: Small businesses and even some larger ones need a lot of help marketing themselves online. Advertising and marketing has shifted to the Web, which allows businesses to engage customers more deeply at a fraction of what they d pay for television and newspaper advertising assuming the business is actually visible online. The challenge is getting your business to stand out amid the billions of web pages already online. Several franchises have developed tools and training that allow franchisees to offer expert guidance for online and digital marketing. Millions of businesses need the help. 2. The advantages Don t let excitement drive you to a quick decision that will legally bind you to a franchise system for years 2

3 of working with a franchise broker? Deciding what kind of business to start is probably the biggest financial decision you ll ever make. Choose well and you ll be rewarded for years to come. Choose wrong and you could face a financial disaster that will haunt you. That s why people do a lot of research online before buying a franchise. But here s the problem: There s a ton of franchise information online, but not much of it is terribly useful. Most franchising sites skim the surface of the business, offering few details that can help you understand the business opportunity and commitment level needed for success. Instead, franchises ask you to give them a call to talk to a salesperson who will ask you to fill out an application and jump through a few hoops before you get a basic picture of the business operations and what it may be like to be a franchisee. It s time consuming and it s a process that people go through with every single franchise they engage. A franchise broker can cut through all that hassle to help you identify well-matched franchises for you to consider. I work with dozens of franchises brands, have already developed in-depth knowledge of their operations, understand their startup costs and revenue potential, and most importantly I understand what types of people not only thrive in the franchise system, but enjoy what they are doing. Different franchises appeal to different people, and a good franchise broker acts like a matchmaker between entrepreneurs and franchise systems. Most people look for that I ll know it when I see it feeling when investigating franchises. They think, Gee, if I can start a beachfront restaurant franchise, I ll have a license to print money! But can you manage a large staff and deal with long hours of operation that stretch into the night? If not, the business will be a nightmare, and probably won t perform financially the way you d hoped. A good franchise broker will ask you a lot of questions to help you avoid those types of pitfalls. Questions like: What are your financial goals? What are your personal goals? What are you passionate about? What are your skills and financial resources? What do you NOT like to do? I look for a match on three levels: head, heart and gut. Do the numbers work? Is it something you will love? Do you feel good about the business, or queasy? Once I understand a client s personality, skills, passions, resources and goals, I start looking for franchises that fit. For most people, there are two critical issues that determine the franchises that really make sense: the lifestyle commitment (i.e., how many hours you ll need to devote to the business, and how those hours are structured) and income potential. I only present them with businesses that can take them where they want to go, and then guide their research so they can get all of their questions answered. This is the only way I know that enabled people to fall in love with the business before they buy it. If you can t fall in love with it BEFORE you buy, why the heck buy it? 3. What are the common mistakes people make when buying a franchise and how do I avoid them? Two biggest mistakes are undercapitalization and picking the wrong franchise. Undercapitalization: Some people will look at how much money they have and will use nearly all of it to buy a business. Then, if things don t go extremely well immediately after launch, they run out of financial 3

4 buffer very quickly. New businesses are rarely profitable right out of the gate. You need to hold on to enough cash to support yourself and your business for several months until it breaks even and starts generating profits. And you need to pay close attention to your cash burn rate and forecast accordingly BE- FORE YOU BUY. Most of my clients invest 25 to 40 percent of their net worth in a new business. If you re thinking about going above 60 percent, you need to take a step back and examine how you re going to be able to get through the startup phase and talk to a franchise broker or a financial advisor. It s easy to make rosy projections when you re in love with a business concept but bad projections are a major reason why half of small businesses fail within the first five years. You must have enough cash to support the business until it became self-sustaining. A bad fit: Have you ever been around a seemingly capable person who hated their job? Did they perform at peak levels? Of course not. Different franchises require different skill sets, appeal to people with different senses of purpose, and deliver different rewards. While people go into business to make money, they also want to enjoy what they do and enjoying what you do will help you stay engaged in your business, which will help you make money. Franchisees who are the most successful truly love the type of work they do to run the business; surprisingly, they don t have to like or use the product/service, but they do have to believe strongly in the value proposition of what they are offering customers. They feel that what they offer has real purpose in the world it s not just about selling widgets, it s about adding value to the community. I ve worked with several clients over the years who wanted to buy a franchise that they absolutely loved, but didn t have enough money to invest in the business so they started looking for something else they could do immediately. My advice? Hold on to your dream franchise and save aggressively for a year or two so that you can afford to do what you truly love. 4. How much money do I need to buy a franchise, and where do I get it? It depends on the franchise. Home-based businesses can often get off the ground for between $50,000 and $150,000, with businesses that cater to other businesses generally being less expensive. For brick and mortar businesses, expect to invest at least $200,000, and some large sit down restaurant franchises can easily exceed $3 million. Generally, about 35 percent of the investment comes from the new franchisee, and under the Canada Small Business Loans Program, Canadian banks will finance to about $350,000 for capital expenditures as long as you have a solid credit score. The vast majority of my clients are investing less than $250,000 all-in. You generally need to have at least $50,000 in liquidity to buy a franchise, and I recommend trying to maintain a 50/50 ratio of initial cash-in versus financing. Home equity lines of credit are the No. 1 source of funds, as well as personal savings. That s especially true for service franchises. Bricks and mortar business owners can tap into the Canada Small Business Financing Loan program mentioned above. 5. How do I research a franchise and find out which franchisors are strong? There are three critical components to understand about any franchise opportunity. But first, a word of caution: Many people, once they understand the basic business model, will call two or three franchisees, then rush to a decision about the franchise. That s not nearly enough re- 4

5 search, and it can cause you to miss great opportunities or commit to weak ones. Here are three things you should understand before you start calling franchisees: What is the business model? Ensure that you understand the industry in which you would operate, as well as trends driving the industry. Is the franchise meeting a demand? Is the market saturated, or is there plenty of room for growth? Is demand (and revenue) seasonal, or year-round? What niche is the franchise targeting? What does a day in the life of a franchisee look like in terms of the tasks they need to be able to manage and the hours they work? Once you understand the business model from the franchisor s perspective, you need to step back and consider what it might be like to run the business every day, every week, for years to come. You need to ask yourself, CAN I do what is required to run this business? In other words, do you have the kills to manage the business and run it well? Also, you need to ask yourself, WILL I do what is required to run this business? and So I have sufficient motivation to do this all day, every day? Do you think you ll LOVE it? Candidly, that s simply not enough. You need to be at a place where you know that you CAN and WILL do what s required to run the business. What does the franchisor offer the franchisees? Why pay royalties? A good franchise organization will have experienced leaders who are constantly engaged in market research to help keep your business competitive and ahead of the curve, and will also offer excellent and ongoing training and support to franchisees, helping them manage the challenges of growing a business. In addition to having the instruction manual for a successful business, you should also have a coach and a team. One of the factors driving successful franchises is the amount of communication amongst franchisees, and that s something smart franchisors facilitate. Talking to enough franchisees is critical when evaluating a franchise, and you should talk to a range of people. I advise franchisees to talk to eight to 10 franchise owners, and to make ⅓ of their calls to top performers, ⅓ to mid-range performers, and ⅓ to low performers who are likely to be unhappy. I guide clients on how to find these people, and to ask themselves Who am I more like? If I m like the people in the middle group, and they are achieving the goals that I want to achieve, then great! If only those in the top 15% of the system are achieving the success that I want, then what kind of magic dust am I going to need to make sure I m one of those top 15%? That s a riskier proposition. And what about the unhappy franchisees? How has the business fallen short of their expectations? What are their complaints and criticisms? They tend to offer a vivid portrait of the obstacles to success. Can you overcome them? One of the main things you ll want to identify when talking to unhappy franchisees is this are they unhappy because they are not following the system, or are they unhappy because the system isn t working? If it s the latter, you ll get more insight into this as you talk to middle-performing and top-performing franchisees. Once you ve done your individual research and feel you re very close to making a decision about whether to buy a franchise, it s time to seek professional advice. At some point in the franchise investigation process, franchisors will provide a franchise disclosure document and franchise agreement outlining all the legal obligations binding the franchisor and franchisee, including details about royalties and fees. These are substantial documents typically in the 75 to 130 page range, and written in lawyerly prose. It s critical that you meet with a franchise lawyer (not a regular business lawyer). A franchise lawyer can look at the Talking to enough franchisees is critical when evaluating a franchise, and you should talk to a range of people. 5

6 disclosure documents to help assess risk and financial exposure from the contract. 6. How much can I make? What are reasonable returns? That s a question that everyone wants to know and which is impossible to directly answer. I don t have a crystal ball. What makes this even more difficult to answer is that, because of franchise laws in most jurisdictions, franchisors usually only provide a limited perspective. Before you start your research, what you should ask yourself is how much financial return you need to receive to meet your short and long-term goals, and what is the work/life balance that you want to maintain in order to maintain your ideal lifestyle once your business has hit full stride. The answers to those questions will help sift out brands that don t typically produce enough income to meet your goals, or which demand too much of your time in order to generate the income you need. Once I understand your financial and lifestyle goals, I can steer you toward franchise systems where a solid portion of the franchisees in those systems have been meeting or exceeding your stated goals. It is through the research that you can then identify whether or not you can duplicate what existing franchisees have done in order to achieve their financial returns. In terms of earnings potential, I ve seen people buy franchises and double their earnings, I ve seen people match their previous earnings, and I ve seen people earn less. What I do share with clients is that the best way to get a solid understanding of likely financial returns within a specific system is to ask the right financial questions when talking to the 8 to 10 existing franchisees you should interview, asking them about their experiences, time commitments and financial returns. You need to get a sense of what the mean average performance of franchisees who have already invested in a specific franchise system. There are a lot of sensitive questions to ask and specific ways to ask them in order to get the right information. We provide a lot of coaching and guidance in order to help our clients gain as much information as possible. 7. How long does it take to break even? On average, six to nine months, but occasionally it can take less time; you want to understand that some businesses can and do take much, much longer. The answer is unique to each business, which is one reason it s important to talk to eight to 10 franchisees when investigating a franchise. The top performers and the bottom performers will have very different insights, but if you ask them how long it took them to break even or what held them back, you ll gain a lot of perspective about what it takes to ramp up the business. As a rule of thumb, plan to have six to nine months worth of personal living expenses covered without drawing a penny from the business. The best way to get a solid understanding of likely financial returns within a specific system is to ask the right financial questions when talking to the 8 to 10 existing franchisees you should interview, asking them about their experiences, time commitments and financial returns. You need to get a sense of what the mean average performance of franchisees who have already invested in a specific franchise system. 6

7 Ask that question of the franchisees you speak with, and always, always, always defer to the experience of existing franchisees. Don t assume that your business will start at a galloping pace. Plan ahead. For instance, if the monthly expense for your business is $4,000 (business working capital), then you will need to be able to cover that cost and pay your personal expenses, such as your mortgage (personal working capital) until the business becomes profitable and generates enough money to live on. Most people plan the business working capital well, but they overlook the need to also calculate their personal working capital as part of their initial investment. I strongly recommend that you account for both forms of working capital when building your financial forecasting. 8. Can I buy the business and pay someone else to run it? You can, but you ll still need to manage the manager, handle payroll and make marketing decisions. I call these businesses passive engagement because even if you want to be a passive owner, you should still expect to spend hours a week on the business. If you choose this route, you can keep a day job, too, as long as you re not a hour a week executive. Passive engagement ownership can sometimes yield weaker results but it depends on the franchise system. You really want to be careful when looking at this type of business model I ve seen some franchise systems that allow passive ownership, but the business model really isn t designed to be run as passive engagement; as a result, the majority of passive engagement owners wind up clumped together as the lowest performers in those systems. Instead, what you want to see is a system with passive owners among the top-performers and middle-performers then you know that the business can work well without the owner on site full-time. Since passive engagement owners must hire a manager to run day-to-day operations, it s a more expensive way to start a business. Typically, the investment range for the business will rise to at least $200,000 to $300,000, and the break even point for the business will be delayed by the additional overhead. It s not a short-term ownership strategy. In most cases, you shouldn t expect to see substantial profits until Year 3. Investors in these types of businesses are comfortable with little to no return in the first couple of years, but they are looking for consistent and predictable financial returns over a 15 to 20 year period in essence, they are creating a long-term annuity where the return for offsets the initial investment. Most people who buy these types of businesses are not satisfied with just one unit; instead they typically owned 3 to 5 units thus creating the ability to have an executive level income with a minimal amount of weekly time commitment. 9. What is the success rate for franchises? In 2012, FranNet conducted a North American survey with 1,260 past clients who consulted with us before opening a franchise between 2006 and The survey Most people plan the business working capital well, but they overlook the need to also calculate their personal working capital as part of their initial investment. I strongly recommend that you account for both forms of working capital when building your financial forecasting. 7

8 showed that 85 percent of franchisees who consulted with FranNet were still in business after five years, compared to about 50 percent of small businesses overall. Why is the success rate so much better? Because we work with good franchisors who are looking for prospective franchisees well matched to the core roles required to run their business In other words, a great fit not just a warm body capable of writing a check to buy the business. Successful franchisors take pains to recruit the right people. They also have proven business models and support systems that give franchisees a template for success, allowing franchisees to enter a fragmented market and outperform independent businesses. Good franchisors are also constantly improving the system finding ways to help their franchisees to improve efficiency, boost profits and grab a larger share of business. By growing the business, franchise systems also increase the power of their brand, which becomes a magnet for customers who know what to expect from your business, and that your business is one they can trust. 10. Do I need industry experience? Rarely. The beauty of franchising is that it gives new owners proven systems to help them run a successful business. Often, those systems are different than what someone with previous industry experience is accustomed to, but the systems are there for a reason they re proven to work! Ironically, people with previous experience sometimes struggle within a franchise system because there are habits that they need to unlearn in order for their store to perform properly. It s more important to have transferable skills. For instance, if you have managed a team successfully in one business, you will probably be able to manage a team well in a franchise system. If you manage and relate well to teens, or blue collar workers, or specialists, those management skills will make you much stronger as the boss of your franchise business. Other transferable skills include sales experience, customer service experience or marketing experience. The right franchise will allow you to take advantage of your existing strengths. CONTACT GARY To learn more, give me a call at My consultation is always on a no-cost basis for people who want to buy a franchise. Since I work with dozens of franchisors, I have a wealth of inside knowledge and am not beholden to any organization. This enables me to be 100% focused on your goals, needs a criteria, and not of the franchisor s need for a prospect. To learn about some of the people I ve already helped, visit the blog section of 8