Franchise 101: How to Choose the Right Franchise
Choosing the right franchise is a huge decision that will shape your finances, lifestyle, and calendar for the next 10-20 years. It’s not something to take lightly, and it’s obviously not something you should do on instinct alone.
There are over 3,000 active franchise brands in the US. Some are great, some may not be. And even among the great ones, picking one that isn’t the right fit can start you off on the wrong foot.
Our guide on choosing the right franchise walks you through how to cut through the sales pitch and figure out exactly what’s worth your money and your time.
​How to Choose the Right Franchise
Get Clear on What You Want
​Before you start googling brand names, you should be clear about what you want. Ask yourself these questions:
- How much capital can I comfortably invest?
- Do I want to work full-time or run it semi-absentee?
- What kind of hours, stress, or seasonality can I handle?
- Do I want to hire employees or work solo?
The best franchise for you is going to be one that fits your goals, finances, and lifestyle.
Narrow Down the Playing Field
Most successful franchisees start by choosing a sector they already understand or feel confident about.
Look for industries that are:
- Growing.
- Recession-resistant.
- Aligned with your interests and/or experience.
- Aligned with your community’s needs.
Read the FDD
The Franchise Disclosure Document (FDD) is where the details of any franchise live. Focus on:
- Item 3: Past and pending litigation
- Item 5: Initial fees
- Item 7: Total investment required
- Item 11: Support and training
- Item 19: Earnings claims (if any)
- Item 20: How many units are opening vs. closing​
​If you don’t understand it, find a franchise expert who does.
Talk to Franchisees
​Getting anecdotal experience from the horse’s mouth is always helpful. Ask them:
- How long did it take you to break even?
- What kind of support do you actually get?
- Would you do it again?
​Focus on finding franchisees that have franchises with similar avenues to your interests and operate in markets comparable to your own. And don’t just talk to the top performers. You want the full picture; good, bad, and in between.
Understand the Numbers
A brand may sound great until you realize that it takes significantly more than you expected to get started. Make sure you’re doing some initial, cursory number crunching.
- Startup costs (Item 7 in the FDD)
- Ongoing fees (royalties, marketing)
- Realistic revenue based on Item 19, if available
- Break-even timeline and cash flow needs
Also, make sure you budget for lower ramp-ups and surprise expenses. You don’t want to be caught off guard.
Go to Discovery Day (And Take Notes)
Discovery Day is your chance to meet the team, experience the culture firsthand, and ask more substantive questions. Show up prepared.
Consider questions like:
- What does training really include, and what does it look like?
- How hands-on is support after launch?
- What does a day in the life of this franchise look like?
When in doubt, trust your gut. But also be sure to take detailed notes so that when you sit down and digest everything, you’re comparing facts, not just feelings.
Consult an Expert
Even the friendliest brands that are easy to work with are going to hand you hundreds of pages of documents. It’s highly recommended that you seek out a specialist who can:
- ​Review the Franchise Agreement
- Explain territory rights and limitations
- Flag any unusual risks or restrictions
Doing so can help ensure that you avoid misunderstandings, miss pertinent information, and prevent headaches down the line.
Make a Decision
After you’ve done your research, talked to owners, run the numbers, and gotten professional advice, the ball is in your court. Sometimes, choosing not to move forward is the smart call, even after all is said and done.
Franchise ownership can be life-changing, and that can be good or bad. The correct approach is to ensure that you find the right fit.
