by John Francis

The Hidden Value of Buying a Franchise

Apr 12, 2022 5:17:00 AM Franchisees, Franchise Consulting

Has shopping for a new franchise opportunity ever given you sticker shock? Especially for owners who are new to franchising - the upfront costs associated with the investment might seem high. After all, the fees are typically much higher than what you’d pay to start your own independent business.

If you’ve found yourself in this situation before, you might have wondered how these fees are set and if the investment is worth the costs.

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The short answer to that question is typically YES, though you still need to do your research to make sure you’re both purchasing the right opportunity for you and that you believe in the viability of the brand.

Today, we’re not going to be talking about the obvious benefits, such as the sophisticated training systems, buying power and greater advertising opportunities - those are apparent and should be expected. 

Instead, we’ll dive into some of the lesser known benefits - starting with the people involved.

Value #1: The People in Franchising

If a franchise organization is successful, you can bet that it has a great group of people behind it. Like anything else - a franchise business can’t be successful without good people. The individuals who will become your fellow franchisees, along with the corporate staff and its vendors, reflect the culture (and future success) of the organization.

When you’re purchasing a franchise, you need to remember that you’re not simply purchasing a single-unit business: you’re buying into the culture and the people of the organization. When it’s done right, and everyone does their job, the operation can be very successful and everybody wins! But if there’s a weak link anywhere, whether it be at corporate, in the individual stores, or with the suppliers, it may be more difficult for you to realize the full benefit of the investment you’re making - and you’re likely going to have some struggle.

My advice?

Before you make the decision to buy into a franchise organization, make sure you really know the people you’re getting involved with: meet with them, get to know the franchisee owners, visit headquarters and study up on the business as much as you can. Ask lots of questions and spend time with these folks - you are joining them and want to know what they’re all about. The bottom line is that you need to be able to trust in the mission and commitment of everyone involved. Because once you’re a franchise owner, it’s going to matter a lot. 

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Value #2: Innovation

One of the biggest hidden benefits to buying a franchise is the innovation that exists in the organization.

What this means is that a big part of what you’re buying is the share of mistakes that the organization has already made and paid for. My dad had a great response when he was asked by prospective franchisees what they were getting for the $25,000 franchise fee.

His reply? “I’ve already paid a million dollars in mistakes. I’m only charging you $25,000.”

A brand that is successful is built on years of experience - and as a franchisee, you get to benefit from all that. All of the mistakes and lessons the business learned throughout the years are now baked into the training, marketing, systems and operations. As a new franchisee, this means you get to avoid many of those new-business speed bumps that slow businesses down (or stall them entirely) those first few years.

In a good brand, innovation is measured and strategic - it’s change for purpose, not for fun. The purpose is typically to improve results: maybe choosing a new paint color that customers will find cool and hip or investing in a new computer system that gives franchisees the data to make better decisions and improve the overall quality of their business. 

As a franchisee, you’ll have to pay for this innovation. Not only is it built into the initial franchising fees that you’ll have to pay when purchasing a new business, but expect and know that you’ll have to contribute to these costs on an ongoing basis. It’s easy to find this innovation painful, frustrating or expensive. What you need to keep in mind, however, is that these changes are designed to improve the overall quality of your investment - and to help make you and the brand more successful. If you believe in the organization that you’re buying in (and you should) then it’s important that you accept and adopt these changes as they come up.

Innovation is inevitable in a franchise. You should know it’s happening and accept it. 

#3: Exit Strategy

Franchise systems are usually really easy to get into when you want to buy into a system. But when it’s time to say goodbye? Getting out of a system can be a lot more challenging. 

With this in mind, one of the first things you should do when you purchase a franchise is to have an exit plan. It may be the furthest thing from your mind right now, but there will be a time when you’ll need to exit the business. Usually it’s when the “fun factor” starts to decline. If you're no longer enjoying the business, or you’re simply getting lazy, tired or bored, it’s time to think about selling.

Just like when you want to sell your house or car, there are experts who specialize in franchise resales who will walk you through the process and help you find a buyer. However, because you’re not selling an independent business, but a business that is part of an existing brand, there are additional requirements they must meet before they’ll be eligible to purchase your franchised business. They’ll need to qualify and go through all the training and will need to buy into the brand just as much as they’re buying into your unit.

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It’s not something that’s usually talked about, but you want to have a successful exit just as much as you want to have a successful start. Not only is it beneficial to you, as the unit owner, but it’s beneficial to the brand, as well. When you’re able to sell your unit for a great deal more than you paid for it, it demonstrates equity growth - and will get future buyers more excited about investing in the brand.

John Francis

Written by John Francis

About the Franchise Expert

 

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John Francis is an enthusiastic, engaging, and entertaining public speaker because he speaks from experience and he speaks from the heart. Franchising is in his blood, and his parents were true pioneers in the industry, turning their family haircutting business into a 1,000-salon franchise empire. He has been a franchisee and a franchisor, and has a deep understanding of the issues both face. Book John to speak at your event, and you and your franchisees will learn how to look at your business in new, positive, and profitable ways.

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