Need (free) assistance finding a franchise? Visit us https://www.franchise.city/our-services. As franchise consultants and brokers we get asked this question a lot. Here are a few quick tips on best practices for franchise research, and avoiding buying a bad franchise.
Tip #1 Google. It’s amazing what you can find with effective Google research. The good the bad and the ugly will all be online. Now remember that larger franchises by virtue of having hundreds or even thousands of owners are more likely to have some bad feedback. One or two unhappy franchisees is not necessarily indicative the entire system is bad so take the feedback in context. Also newer franchises may not have any data available at all. Check for any unhappy or happy franchisee feedback on franchise forums or industry websites. Google not only the franchise name but also the franchise name plus the word “review” “feedback” or “unhappy”
Tip #2 Review Sites. Check business review websites like Yelp or Angies list to see the feedback from actual customers who have visited existing franchise locations. For food or service type franchises this information is critical to see what the public perception of the brand is and what challenges you might encounter as a franchisee. Do customers think the food or service is fairly priced? Good service? Now remember some franchises will have some poor franchisees in the system so check the reviews on a few franchise locations to get the bigger picture. Yelp, angies list, Google reviews and even facebook are good starting points.
Tip #3 FDD (Franchise Disclosure Document) After you complete the application and NDA the franchisor will provide you with an FDD. The FDD is a standardized form and is a great resource for information. They are usually 100-300 pages long so pay particular attention to items like litigation, number of units operating, suppliers, territory size, length of agreement, litigation, financials, dispute resolution and item 19 which is the financial data of their franchisees. Once you have several FDD’s you can easily compare the brands side by side to help you choose which one might be best.
Tip #4 – Realize there is no “Best Franchise” only the best one that is suited to you. A franchise that is great for an extroverted, type A personality is not good for someone who is not good with people or good under pressure. Shortlist your franchise choices not based on a name, or an industry but based on the business model (the day to day operations) that suit your background, skills and your personality type best
Tip #5 – SBA Failure rates. The US Small Business Administration keeps records of defaults on loans from franchisees. This information shows a percentage of how many franchisees failed in a given year. Google SBA failure rates franchises for the most recent list or contact us directly.
Tip #6 – Validation. Once you have a few FDDs in your possession it’s time to call some franchisees. Every FDD will have a list of current owners and those that have left the system. Check the general satisfaction rate and ask good questions like how is the franchisee support, would they invest again and what are some of the challenges they face.