When you are researching the franchise opportunities available on the market, in some instances the warning signs are extremely obvious: unhappy franchisees, shrinking systems and high turnover rates. Still, it’s not all bad. Sometimes, when a franchise appears to be too good to be true, it probably is. Still, whatever the case, when you’re interested in purchasing a franchise, you should probably start with slowing down and asking more questions rather than just diving head first into cloudy water.
Take growth for example. It is well-known that growth is extremely important to franchising. This is why year-to-year, growth is one of the biggest factors. And you will have to pay extra attention to it. If a company does not intend to grow, they would not be interested in franchising in the first place. Still, is growth always a good thing?
It’s simple to assume that a rapid growth translates into a strong franchise system that will continue to become even stronger. And this may very well be the case. Still, many new franchises tend to grow extremely fast, only to have their numbers plummet a couple of years later. So when you’re interested in buying into a rapid-growing franchise, make sure you spare some time to pinpoint and examine the factors that determine the high growth rate of the company and how and if the franchise is prepared for that fast growth.
Here are some questions you should consider before buying a rapid-growing franchise:
1. How does the franchisor fare in his/her selection of his/her franchisees?
Is he/she careful or rather reckless? If you’re discussing with a franchisor, they should be interviewing you just as much as you are interviewing them. If they are serious, they are interested in finding out whether you are a good fit for their brand and if you are prepared and willing to play by their rules (i.e. follow their system).
If you consider they are willing to hand out a franchise to any person who will write them a check, you should probably steer clear. Why? Simple. That is the main reason why they are expanding at such a high rate in the first place. The larger the franchise, the more brand awareness. Still, this may not be all that great. One bad franchisee could be the downfall of the entire franchise. New franchisees could determine either total success or total ruin, so make sure you stay away from franchisors whose growth is closely related to not vetting their franchisees.
2. How experienced is the management team?
A management team with years of experience is able to create something truly amazing, especially if they’ve registered rapid growth in other franchises they’ve worked with. They know exactly what they have to do when a dozen franchisees arrive for training. When you are looking at a fast-growing franchise, you should probably find out if the management team is experienced as far as franchising is concerned. And if the team does possess the experience, make sure to find out with what companies they have previously worked. Make sure to go through their backgrounds and ask how they have managed rapid growth in the past and how they plan to deal with it nowadays.
3. What resources does the franchisor possess and what other capital is it willing to add so that growth can be properly managed?
A serious franchisor must possess both the personnel and the technology to be able to handle an increasing number of franchisees. Moreover, they must show willingness to increase their personnel as needed.
4. Is the franchisor willing to offer exclusive territories?
During your meeting with the franchisor make sure to ask if they are willing to offer exclusive territories. If the answer is yes, follow up with an additional question to find out how big they are.
If not, ask yourself whether that type of business they are selling would benefit or be harmed by more locations in the same area. Could you work together with other franchisees or will you prefer to compete with them? If a system registers fast-growth without considering if their franchisees could register success in large numbers, you should probably look somewhere else.
At a first glance, fast growth seems great, but it could be a hidden warning sign. It is your duty when researching a rapid-growing franchise to check below the surface to determine which one of them it actually is. Discuss with the franchisor and ask them the tough questions. Also, consider talking to past or current franchisees.
The bottom line is that you will have to do your homework. The growth that should be of the utmost importance to you is that of your individual franchise business. And that growth depends on several factors such as: finding the right franchise system for you and a system that looks after its franchisees regardless of how many of them there are.
