By Bedros Keuilian
I’ve always advised potential franchisees, even those asking about my own franchise, Fit Body Boot Camp, to think carefully and do their research before joining a franchise.
As president of a franchise myself, I obsessively study other franchises across industries to see what is working and what is not. As a business coach to many professionals working with other franchises, I have a unique perspective on franchising that comes from both sides – the franchisee and the franchisor.
So now I want to share with you some of the most important factors a potential franchisee should consider before joining a franchise.
Where Are You Getting the Initial Investment?
The first option, of course, is to simply save up the money. This is an extremely safe option…but it sure can take a long time. If you want to move faster than that, you can borrow the money. By this mean I everything from taking out a loan, to finding investors, to asking friends and family. For whatever money you end up borrowing, make sure you communicate openly with the lender and make sure everyone is crystal clear on the nature of the loan. Do they expect any ownership/control of the business? Interest? Is it simply a gift? Whatever the case, get it in writing and make sure everyone agrees. By the way, some franchises (including Fit Body Boot Camp) can help guide you through the fundraising process. Keep an eye out for that opportunity.
If you’re up to the challenge, raising your own capital by selling something can be a tremendous opportunity to hone your critical skills as a business owner. There are many ways to do this, but I suggest packaging your unique expertise into an online info product and selling that.
How Soon Can You Expect to Be Profitable?
This is important for obvious reasons (like actually having money!) but it’s especially important if you plan on borrowing money for the investment. The last thing you want is to wind up juggling a flailing business and a debt snowball at the same time. This is where you need to start seriously researching the franchise options you’re considering. The best thing to do is talk to current owners about their experience or look up their reviews online. You also can and should ask the franchise headquarters about this. If it’s a good franchise, they’ll have a clear answer ready for this question. If they trip over themselves trying to answer, or if they try to dodge the question, that’s a red flag.
Does the Franchise Scale their Royalties?
To you it might just seem like common sense that if you can bring more revenue into your business without increasing your overhead, you deserve to take home more profits. I certainly think so, but many franchisors disagree. They scale their royalty fees to keep pace with each location’s revenue, meaning their franchisees can work as hard as they want but barely increase their profits at all. I suggest you instead seek out a franchise that has a flat royalty fee per location, like Fit Body Boot Camp.
Will You Have Room to Open Multiple Locations?
Now when it comes to multiple locations, you’ll never hear a franchisor telling you “no” …but be careful. Look into how the franchise distributes their territories. You want a franchise that gives ample breathing room to each new location, so that franchisees don’t end up competing with each other for business.
What is the Franchise’s Failure Rate?
This is the big one. Do the research, and you’ll be shocked at how many locations fail even at big, successful franchises. The numbers are ridiculously high…and totally legal. See, the Federal Trade Commission has set the acceptable franchise failure rate at 30%. Yes, that’s right. A franchisor can let almost a third of their franchisees fail without facing any serious consequences. And the sad reality is that many franchisors have accepted this and are content with cutting their losses and raking in money from the other two thirds who survive or thrive.
Personally, I can’t stand this mentality, and I’ve worked hard to keep Fit Body Boot Camp’s failure rate as close as possible to 0% (currently, it’s about 3%). The key difference between us and other franchisors is that my team and I do everything we can to support our franchisees and make sure they succeed. That’s what makes us the “Anti-Franchise Franchise.”
Bedros Keuilian is a leading consultant for online marketing, business systems and development. His blogs, products, books, and live events help tens of thousands of business owners around the world build more robust and profitable systems. An immigrant from a communist country turned hugely successful entrepreneur, Bedros uses the stage to share his personal American Dream story and impart his passion for success with audiences worldwide. His Twitter handle is @.