Before You Invest in a Franchise, Here’s What You Need to Know

Featured image: Neighborly Blocks - Before You Invest in a Franchise, Here’s What You Need to Know

[I wrote the following guest article for Small Biz Daily]

It’s been a rough time for the global economy as we’ve coped with a pandemic. However, while this health crisis is certainly unfamiliar, this is not the first time the U.S. has found itself in a recession. There are some major differences between past economic crises and now, but there are also similarities in how the workforce is responding. One trend that’s surged in the past that we’re seeing again is a spike in buying a franchise. Why? In times of uncertainty, people have an innate desire for control, wanting to take job security into their own hands by becoming their own boss. Simultaneously, the risk of launching a new business from the ground up, without franchisor support, is daunting. 

Franchising continues to tout the cliché of “going into business for yourself, not by yourself,” warranting the “recession-resistant” reputation the business model has earned. 

Nonetheless, before you invest in a franchise, the following are important first steps to consider: 

Know your “WHY?” 

While it is common for people to turn to franchising during times of recession as a way to control their own destinies, perhaps this isn’t your reason. Maybe you want to build a family legacy with a business your children can lead one day. Maybe retirement isn’t for you, so you’re interested in a second career. Maybe you’re eager to give back to your community in ways you previously couldn’t with your old office job. 

The reasons why people look to franchising vary, and no reason is more valid than another. When asked WHY you want to get into franchising, you must be honest with yourself about what’s driving your interest. If you don’t have a legitimate reason to take the leap into this space, then perhaps it’s not worth your time and money. 

Identify your passions and see where they lead 

The beauty of franchising is that its opportunities exist across nearly every industry. Ask yourself what excites you and see if the answer leads you to a particular franchise concept. Do you consider yourself a “foodie”? Are you into fitness? Are you a musician? Whatever makes you tick, chances are you can make it a career through franchising. 

With that being said, don’t limit yourself to only the “sexy” or “fun” industries. Sometimes your “WHY” and your passions don’t go hand-in-hand, or the “WHY” becomes your passion by overshadowing your personal interests. For instance, it’s 

unlikely that anyone would consider appliance repair a passion of theirs. But for someone whose “WHY” is all about getting into a business that is secure even in times of economic uncertainty, opening a Mr. Appliance franchise could be the means to your desired end. Combining your “WHY” with your passions will help you narrow your search for a franchise to invest in, and then you can begin researching more critically. 

Do your homework and network 

Before putting your money into anything, you need to know exactly what it’s going toward. That means doing your homework to learn everything you can about the investment(s) you’re considering. Fortunately, franchising is a step ahead on answering all your questions via the Franchise Disclosure Document (FDD). This annually updated legal document covers practically everything you need to know about a franchise opportunity. It’s a great “one-stop-shop” to start with when you get serious about certain concepts. 

Of course, the many pages in a FDD offer material information about franchise operations, but there is even more to gain from having real conversations. Item 20 of the FDD will include a list of all of a franchisor’s current franchise owners and their contact information. What better way to learn about ownership with a particular franchise brand than through those who are currently in that position? Then, you should also make a point to attend Meet the Team Day or Discovery Day – networking events designed for franchisor/prospect interaction – for the franchise brand(s) you’re interested in. In light of new social distancing measures all around the world, many franchisors, like Neighborly, have opted to start hosting these events virtually, making them more feasible to attend in terms of both travel and cost. 

Seriously consider the financials 

Franchising is not a “get-rich-quick” scheme. There’s a significant cost associated with every stage of the process: buying the franchise, operating the franchise, and ultimately selling the franchise. Take all of those costs into consideration before you buy in. 

The cost of opening a franchise varies, with some concepts falling into a category of multi-million-dollar, brick-and-mortar investments, and others not even surpassing $100,000 in start-up costs. Franchisors offer a wide variety of financial support like franchisor-sponsored loans as well as connections to Small Business Administration (SBA) loans and/or VetFran loans for military veterans. But you still need some start-up capital of your own to begin with. The FDD should be clear about the upfront costs would be so you can be fully prepared. 

If you proceed with all of the above and still feel confident that franchising is for you, then I promise you are in for a rewarding experience with that investment.


Written By Brad Stevenson, Chief Development Officer, Neighborly for LinkedIn