General Business Files

There are over 2,500 different franchises for sale right now. Trying to choose the right one might seem like an impossible task. If you are a first time franchise purchaser, where should you begin? The answer is not easy; every franchise is unique and there are hundreds of characteristics to review. That said, certain characteristics keep popping up when we examine the best franchises.

Here are SmarterFranchises three keys to a great franchise:

1. Multi-unit Ownership
The proof is in the pudding. The best indication that a franchisee is happy with his business is if he spends more money to purchase another unit or an additional territory. The logic is the same as why Honda has such a strong reputation in the car market. If your uncle Jeff has bought three Accords in a row, Honda must be doing something right.

For the most part, multi-unit owners start with one store which becomes so successful that the want a second and so on. In order to finance a second store, a lender will examine the first store’s cash flow. If a franchise wasn’t financially viable, it would be nearly impossible to open additional units.

Multi-unit ownership is also an indication of operational efficiency in a concept. With some franchises, there is so much work that is impossible for the franchise owner to focus on anything but day to day operations. The book, “The E Myth” talks extensively about this trap of getting stuck “working in your business” vs. “working on your business.” Even if you never plan to open multiple units, this is an important characteristic, because more likely than not, you would eventually like to retire or at least take a vacation one day.

Be wary of franchise owners who explain low multi-unit ownership by suggesting franchisees make enough money with just one unit. If there is one thing history has shown, people rarely decide they have “enough” money.

2. Proven Franchisor Track Record
There are three items to think about when examining the franchisor’s track record. The first is an understanding of how much risk there is that the franchisor might go out of business. Unfortunately, many of the 2,500 franchise concepts available just won’t make it as sustainable businesses. If you purchase one of these concepts, you may lose much of your investment.

Second, the franchisor’s track record should give you an indication about the quality of the concept. Did the franchisor own several successful stores for many years before deciding to franchise his concept or did he just decide one day that there was good money in franchising so he better come up with a concept.

Third, franchisors with longer track records have more established training and support programs. While you might save a few thousand dollars buy getting into a franchise early, chances are you won’t get much for your investment. New franchisees haven’t had the time to put together development support or training programs or marketing campaigns. Also, if you are one of the first buyers, you are the guinea pig which often means more risk. Maybe a new food concept works great in a mall food court or maybe it doesn’t? Wouldn’t be nice if you weren’t the one who had to run the experiment?

3. Strong, independent franchisee association
Unfortunately, the unspoken reality is that the franchisor’s and franchisee’s interests aren’t always aligned. Eventually, there will be disagreements over finances, marketing programs or development issues. Knowing that issues are sure to arise, it is helpful to know that you will have an organized group of franchisees who can relate to your situation. Independent associations have many benefits. In addition to creating leverage for the purpose of negotiating with the franchisor, an association also can improve communication among franchisees. Independent associations also allow members to pool resources to hire competent professionals such as lawyers or financial advisors or marketing consultants. Finally, like with any organization, a collective, institutional memory is created. The AFA has an excellent article on associations on its site

It is also a negative sign if the franchisor goes out of its way to discourage an association. It usually means that the franchisor does not have the franchisees best interests in mind and is afraid of having to deal fairly with franchisees.

In addition to independent associations, franchisees may also develop a co-op to purchase goods at a discount or control a portion of the system’s advertising budget or develop a lobby group for a specific issue. All of these our good signs.

Did you know many of your friends do not know exactly what you do to make your money? It happens more often than you’d like to think to small businesses.

Since people like to do business with friends, it is important you help them to know what you do.

Recognize that you need to educate your friends and acquaintances about your small business. Then they can become some of your best sources of new clients and promote you to others as well.

Right now you have lots of social and business networks of people who know you personally: from your clubs, recreational activities, school activities, religious affiliations, hobby groups and so on.

Your friends and acquaintances know you for the person and character you demonstrate to them in person. Your friendship is of primary importance to them. What you do for a living is secondary.

So it’s up to you to tell them about how you can help when they (or others they know) need what you are selling. Your personal colleagues are valued assets to promote both you and your business.

Your goal is to become the “go to” person when your friends need your services.  Instead of the “WIIFM” What’s In It For Me formula, you want to get them to ask you “WCYDFM”, What Can You Do For Me? In other words, “Can I turn to you for valuable advice to help me solve my problem?”

Sure, your friends may know what type of business you are in. “He has a garage, she owns a consulting service, he is a mortgage broker, she sells real estate” and so on. Sometimes, small businesses can have vague names, which cry out for further explanation.

So it can be quite productive if you simplify and clarify precisely what you do in terms your friends can understand. Tell stories. Give easy-to-understand examples.

You probably already have one or two “elevator” speeches of 10 or 30 seconds explaining what you do. Develop another version suitable for more general use.

When you tell others what you do, use your own personal style of story-telling. Take advantage of impromptu situations, and be sure to use your judgement about when to insert your message into the conversation.

Make it easy for people to talk about you with others in their own circles of friends and acquaintances. This how to use the multiplier effect: friends tell friends… who tell friends, etc.

In the never-ending quest for new customers and clients for your small business, why not take advantage of personal opportunities right there in front of you every day?

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