Franchise agreements are like marriage — a wonderful thing if you choose wisely
Nothing in life is guaranteed, and while franchising has proven to be a dynamic business model — creating hundreds of thousands of businesses and millions of jobs — the fact is, not everyone will succeed.
That’s why it’s so important to research a franchisor before signing an agreement to become a franchisee. Asking questions is important when it comes to any investment, but it’s especially relevant to business format franchising because of the communal and relational intensity of the business model. A franchise agreement is tantamount to a merger or a marriage — it is a very close partnership, and you are going to be tightly bound to one another for many, many years.
A business relationship needs to be built on trust, and the best way to find out if someone is trustworthy is to ask around. Reputable franchise systems will be happy to provide a list of their franchisees, and I encourage potential franchisees to call at least 10 people and ask the questions, which are included in my book The Complete Idiot’s Guide to Franchising:
• Has the franchisor done everything it promised?
• Were your financial expectations met?
• Was the total investment about what you planned?
• Are you thinking about opening an additional units?
• Have you closed any units?
• If you had it to do over again, would you invest in this franchise?
The answers you hear will paint a strong portrait of the franchisor. It’s also important to examine the strengths and experience of the franchise system’s executive team and ask them questions such as:
• How will I be trained, and by whom?
• How will the company support the development of my business?
• What advantage do I receive from the brand recognition and development?
• How can I renew my agreement or terminate it?
• How can I transfer my rights to another franchise?
Once you’ve done your research, you’ll have a clearer picture of the business and can begin the relationship on solid footing.
Those questions, as well as my upfront advice for franchisees, come from 30 years of making mistakes and learning in the trenches. I focus on three things: building trusting relationships, providing a vision for the company and improving unit economics. Those are the keys to keeping franchisees happy.
Let’s face it, there’s no organization that doesn’t have a certain amount of churn in it.
One-hundred percent of people don’t stay with a franchise long-term. Some people lose the dream that drove them to business ownership. Sometimes a retail location changes in ways that make a location no longer viable. Often people achieve their financial dreams and decide to exit the franchise because they are ready to cash out. There are all kinds of reasons that people decide to leave a franchise organization.
Trust should not be one of them.
Relationships are much more important than “contractual obligation.” People interested in buying a franchise should seek out a franchisor who genuinely cares about the success, and will offer support to, franchisees.
Tasti D-Lite chairman and CEO Jim Amos has more than 30 years of experience guiding successful franchise companies such as Mail Boxes Etc. He was inducted into the International Franchise Association’s Hall of Fame in February.