Is a Franchise in your Future?

In my 30 plus years with McDonald’s Corporation, I experienced first-hand the highs and lows of individuals owning a franchise.?I have been fortunate to work on the Franchisee, Franchisor and Consultant side of the business.?Over the past 3 years, I have had the opportunity to consult to individuals on both sides of the franchise model. Here are the top 5 success factors for those who are winning and have done so for several years.??

1.????Capital – Capital – Capital

Franchise liquidity requirements can be as low as $50K for a JAN-PRO or upwards of $500M for a Double Tree Hotel.?Franchisors must call out their minimum cash on hand requirement and net worth requirement to be accepted as a franchisee.?This will be disclosed in the Franchise Disclosure Document (FDD). The likelihood of getting in at the lower range of the capital requirement is generally unlikely and reserved for remote and underperforming sites.??No matter the liquid capital requirement that you read about, there will always be a need for additional monies.?Examples include the ever-rising operating costs, taxes, and required reinvestments.?The bottom line is - more cash will be needed beyond the franchise fee.

2.????Align with your Passion / Family Passion

With over 26,000 new franchise units projected for 2021, it is generally best to align with a franchise that you feel engaged with and inspired to contribute to. Most franchises require a great amount of personal time and passion.?It’s important to pick an industry and company you feel aligns with your personal goals and values.?If your passion is helping people, you may be better aligned for a service-based or Senior Care franchise vs a quick service restaurant.?

Many select a franchise based on family values and the ability to leave a business to adult children or relatives.?It is not generally as easy as just handing over the business when you decide to retire in a franchise system.?There are requirements and expectations of the buyer that the franchisor will request before you can sell. Understand if your family member has the same passion as you do. ?The franchise you choose may not be what your relative(s) foresee as their future. ?It’s important to ask good questions about succession, as you do your franchise research.

3.????Build a Strong Team

According to Richard Branson, “Clients do not come first. Employees come first. If you take care of your employees, they will take care of the clients”.

Reflecting on the last year, if you are still in business, still employed or still able to employ others, gratitude is in order. The reason a business made it through is because of the hard work and dedication of its employees.?It is however important to ensure follow-up mechanisms are in place to measure individual results against targets and expectations.?It is still your business, and you need to keep your head in the game to safeguard that the team you created and empowered is doing what you expect.?As they deliver on those goals, they should be appreciated, rewarded, and promoted.

4.????Stay Customer Centric

Of course, we intuitively comprehend that customers are?important because they drive revenues.?Without them, businesses cannot continue to exist. It might also appear easy to preserve the P&L by raising prices or removing customer benefits to cover a less than ideal business situation.?This may work in the short term, yet consumers have a multitude of options as to where and when they spend their money.??It’s important to note that franchisors measure success relative to an increase in customer demand (growth).?They want to partner with individuals who drive the success of the brand.?Keep this thought front and center as you make your decisions around preserving your business vs growing your business.

5.????Know your role and the Franchise Disclosure Document (FDD)

Many individuals enter a franchise opportunity as they recognize the support of a proven model. Franchisors allow business owners to avoid the headaches that come with starting a business from scratch.?While this is true, it is important to understand your role as a franchisee vs the role of the franchisor.?The Franchise Disclosure Document (FDD) is the first step in discovering this.?Too often, franchisees believe they will have more autonomy than they do around such business areas as product offerings, service price, real estate, financing/fees, and business engagement.?It’s important to read the FDD and get legal counsel to review it as well.?While there is often a desire to be entrepreneurial as a franchisee, there can be limited freedoms in key areas as you work to align with the goals and image of the brand you choose to partner with.

With all this said, doing your homework can lead to success for you and the brand.?Based on my experience, I am a strong believer that a franchise can be lucrative for those who truly understand and align with the objectives of the franchisor they are partnering with.?I’ve been fortunate to see many businesspeople achieve their dreams of financial independence within a franchise system.?

To learn more about the Economic Outlook on franchising for 2021, please click on this link: Ihttps://www.franchise.org/sites/default/files/2021-02/Economic%20Outlook%202021_web2.pdf