Two years ago, John Falvey, then a specialist broker for Goldman Sachs on Wall Street, decided he needed a career change. After quitting his job, he came across an old colleague who was thriving as a franchise owner of a mobile pet-grooming business.
So Falvey decided to get into the franchising business, too. After a four-month search, he now spends his time cleaning the ducts of air conditioning and heating systems as a Rockville Centre, New York-based franchise owner of DUCTZ, an Ann Arbor, Michigan air duct cleaning franchise organization. "It isn't glamorous," he says. "I'm crawling around an attic sweaty and dirty. It's not sexy, but if it makes me money, maybe it's not that bad."
Though Falvey says his career change has been a profitable one, duct cleaning isn't exactly for everyone. But if you want to get into franchising, then you're in luck: there are thousands of different types of franchise businesses you can buy into, at varying levels of investment of both time and money.
The problem? The decision can be overwhelming. No one particular business is for everyone, but to find one that will give you a greater chance of success, you should be prepared to devote a significant amount of time and research. Here's our guide to choosing a franchise business.
Choosing the Right Franchise: Get to Know Thyself
Before you jump into any particular franchise opportunity, you need to start by getting intimate with yourself. "You have to take more than just a step back," says David Omholt, president of Plano, Texas-based franchise consulting firm Entrepreneur Authority. "You have to be brutally honest with yourself and introspective about what you're trying to accomplish by buying this business."
Here are some typical questions a franchise broker would ask to get you started on the search for your franchising soul mate:
What do you want out of a franchise business? People buy into franchises for a variety of different reasons. Is this something that you want to do as a hobby, and still work a full-time job on the side? Will this need to become your primary source of income? Are you looking to build equity? Do you eventually want to own more than one franchise?
"It sounds so simple, but the type of business you eventually select really flows from what you're trying to accomplish," says Jeff Elgin, CEO of FranChoice, a franchise consulting firm based in Eden Prairie, Minnesota.
How much money do you have to invest? You might have an idea of what type of business you want to get into, but taking inventory of your capital will give you a realistic sense of what franchise opportunities are possible for your budget. Like any business, you shouldn't expect to be profitable right when you open your doors, so make sure you have enough money to live off of while you get off the ground.
You should be prepared for the fact that loans won't necessarily be easy to come by. According to Omholt, a total investment (including your franchise fee, working capital, inventory, equipment, and other costs) of $200,000 or less will typically be a business without a physical retail location. In this case, it may be harder to secure loans from the bank. With a total investment greater than $200,000 (and a good credit score, usually 725 or above), you can most likely buy into a physical domain with hard assets and it will be easier to secure a loan for the balance of the investment.
If you've done some poking around online, you probably will have noticed a few franchise opportunities promising investments as low as $10,000. A word of caution from Omholt: "There's nothing more expensive than a cheap business. This probably will have a high turnover rate, will be more saturated and competitive, won't provide a lot of support and training, and won't be a business you can resell."
What's your exit strategy? This is a commonly neglected question potential franchisees fail to ask themselves, Omholt says. "Be honest about how long your runway is," he says. "Is this something you want to do for five years and flip? Or is this something you intend to pass down to an heir?" Answering this question is important because different franchisors have different restrictions on selling to other franchisors, for instance, and some franchise businesses aren't even scalable in the first place.
How much risk are you willing to assume? Once you've reviewed your financials, you can probably get a sense of how much risk you're able to assume, but also take into account your personality: how risk-averse are you? "There are some great, well-established companies with long track records of franchising success, but they aren't exactly on the cutting edge anymore," says Mark Siebert, CEO of the iFranchise franchise consulting group, based in Homewood, Illinois. "The newer, cutting edge companies are riskier, but they can potentially offer higher returns."
How involved can you be? Some people prefer to be directly involved in the delivery of the business's product or service, but for those who open a franchise on top of working a full-time job, this isn't an option. Think about which days of the week you'd prefer to work. "Some people tell me they'd only like to work weekdays during the day," Elgin says. "That basically eliminates two-thirds of all franchise opportunities."
What are you good at? Examine your skill sets, what you've acquired in your previous professional experience, and what you're comfortable with. Are you comfortable with sales and cold calling? Do you like interacting with customers behind the counter of a retail location? Can you manage people? (Many people are used to corporate employees, but in many franchise businesses, you'll have to manage minimum wage employees with high-turnover rates.) Do you like being out in the field working with clients and customers, instead?
While you may have the relevant skills, you don't have to be an expert in your field, just yet. Take Falvey and air conditioning and heating ducts, for example. "You shouldn't pigeon hole yourself into the industries that were in your corporate universe," Omholt says. "Franchising allows you to reinvent yourself and go into a completely different industry and leave the functional expertise to the franchisor."
How important is status? If someone asks you what you do, would you be comfortable saying you own a business that cleans the grease out of the commercial hoods in fast food kitchens? "A lot of people say I would never go into that business because they don't want to explain that to friends at cocktail parties," Elgin says. "I actually like disgusting businesses like that. They're often huge moneymakers because they don't have a lot of competition."