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How to Select a Franchise

With thousands of franchise systems operating in dozens of industries, there is no shortage of choices for people interested in buying a franchise. At the same time, the numerous choices can make that decision a challenge for even the most determined would-be franchisee. By first defining what you want and then using that information to narrow the field, you can make your decision both manageable and more likely to succeed.

Start by asking yourself what kind of franchise you want to operate. You will need to consider the hours you are willing to work, the kinds of work you enjoy and whether you prefer working directly with customers or remaining behind the scenes. Key factors also include how much income you need to generate and how much cash and borrowed funds you can commit to the deal.

As a general rule, you will want to avoid industries and fields that are either too crowded or too thinly populated. Crowding creates competition, while the absence of franchisees in a particular niche suggests that it either doesn’t lend itself to franchising or that the market hasn’t yet developed adequately. Lenders prefer to fund franchises in proven markets, so keep that in mind as well.

The franchiser should offer a well-known brand name, a track record of proven performance and a good reputation among past and present franchisees. The franchiser should also have a detailed manual of operations to help you run the business according to tested principles but also give you enough flexibility to help you adapt to specific circumstances. The franchise must also, of course, conform to your requirements for income and investment.

Once you have set some parameters, several sources and services will help you sift through the world of franchise opportunities to reduce the vast array of choices to a manageable number from which to choose.

The International Franchise Association (IFA), a Washington trade group, provides a free online directory of more than 1,200 opportunities searchable by category, franchise name, amount of start-up capital required, availability of financing and other important criteria. Another IFA directory, VetFran, catalogs more than 250 franchise companies that offer financial incentives to honorably discharged veterans.

FRANData, a franchise-information company in Arlington, Va., maintains a database of franchise circulars, contact lists and other information about franchises. For a fee, the company provides franchise buyers with research and analysis on current opportunities. FRANData also sells information and analysis to franchisers, lenders and legal and consulting organizations.

World Franchising Network is an online directory of franchises published by Source Book Publications of Oakland, Calif., that can be searched by company name, industry, average total investment, average royalty fee and other criteria. The company’s books include directories of new franchises, international franchises and franchises friendly to minority businesspeople. Its various Web sites hold repositories of franchise circulars, and lists of high-growth-potential franchises and large franchise systems.

Wall Street Journal Online, February 11, 2009

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