Franchise Success Requires Controlled Growth

Franchise Success for Franchisors and Franchisees Depends On the Franchisor's Mindset

• Focus on Franchise Training -  A franchise that does not offer proper training to their franchisees will cause both the franchisee and, ultimately, the franchisor to fail due to a lack of understanding of the overall goal of the franchise and how to obtain it.
  
• Franchise Growth Must Be Planned and Controlled - A franchise that grows "too fast" in the sense that they do not offer proper training, resources or support will more than likely "crash and burn" eventually.  These type of fast growing franchises may seem like a "hot franchise" at the time of purchase but more than being "hot" the franchise needs to be stable and offer room for growth at a controlled and planned pace which will ensure both the franchisee and franchisor are on the same page.
  
• Product Development Must Be Ongoing - A franchise that does not update and re-invent or continuously develop their product may eventually cause the franchise to fail.  There should be a constant effort coming from the franchisor to develop the franchise product which will trickle down success to the franchisee and ultimately cause the franchise system to experience more success.

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Refranchised Locations: Should You Consider Buying a Company Owned Franchise Location

In a recent article “Refranchising: Should you Buy In?” Jeff Elgin, CEO of FranChoice Inc., discusses a trend that has recently become more popular among franchise companies recently called refranchising or retro-franchising.   The process of refranchising is when a franchise company converts a company owned unit or location into a unit that is available to be sold to a franchisee.  Refranchising has been becoming more popular in recent years and there have been many franchise companies that have been converting not just one but a significant number of units to a franchise location for franchisees to purchase. 

Franchisees considering the purchase of a refranchised location should consider doing thorough research before making a decision to buy into the refranchised unit.  Your main concern as a potential franchisee of the company you are looking into and as potential buyer of a refranchised unit should be “why does the franchise want to sell the unit?”  According to Jeff Algin there are multiple reasons that can trigger a franchise company to refranchise their units:

• Earnings – Franchise companies invest excess capital often to open new franchise locations on their own or buy our other franchisees and then may eventually decide to sell those units to new franchisees.
• Operational Experience – Some franchisors feel the need to operate franchise units of their own in their franchise company so that do not lose their operational experience and helps them stay in touch with the issues and details of owning a franchise location. 
• Training facilities – Sometimes franchisors may buy units for the franchise company but they are not used as franchise store locations but instead for training facilities that can offer hands on training as opposed to classroom training.
• First right of refusal purchases – Franchisors may acquire units from an existing franchisee in order to re-sell them to a new franchisee that is more effective for their specific franchise system. 

When deciding to purchase a franchise location that is re-opening or a unit that is being refranchised for any other reason always make sure you perform due diligence.  To avoid making a bad franchising decision and for more information on how to perform adequate due diligence read Franchise lawyer Charles Internicola's article "Why Due Diligence is Critical when Buying a Business or Franchise". 

Purchasing a Closed Franchise Location: What you Should Consider to Make Sure your Franchise Location is Successful

Franchise lawyer Charles N. Internicola at the New York Franchise Law Blog discusses franchise opportunities involving the “potential re-opening of a previously failed franchise location”.  In the article Charles recommends that when considering these types of franchises that prospective franchisees:

• Understand Why the "Closed Location" Originally Failed - When considering the purchase of a franchise location that previously failed you will want to do your research and figure out why the location failed.  Do research and find out who was at fault and why.  Did the franchise location you are considering not succeed because of its location, the franchisor, the cost of rent, the cost of food/supplies or was it the franchisee who was to blame for the franchise locations closure.  All of these questions should be answered before you decide to move forward with considering the purchase of a closed franchise location.
• Your Investment Goes Far Beyond your Original Out of Pocket Expense - Often franchisors who are trying to offer a closed franchise location to a new prospective franchisee advertise the franchise location as being offered at a discounted start up cost.  Make sure that you fully evaluate the full situation and not just what the initial fee is.  Find out how much debt you will be incurring by purchasing the franchise that is being re-sold and how much your monthly charges will be.  If your monthly expenses are higher than the amount you will be generating in profits it is probably not worth buying the franchise location and you may want to consider continuing your search for the "right franchise" to purchase.
• Don't Just Jump In - Make sure you perform due diligence when considering the purchase of any franchise or business.  You never want to jump into a situation that you are not fully aware of.  Contact other franchisees from the franchise system you are considering purchasing and ask them any questions you may have.  Then, once you have based your decision to purchase the franchise on your due diligence, contact a franchise attorney to review your Franchise Disclosure Document (FDD) and your Franchise Agreement. 

Following the steps listed Charles Internicola's article will allow you to make an informed decision when you are considering the purchase of a franchise that previously closed and can be the difference between your franchise location succeeding or failing.

Mistakes to Avoid When Buying a Franchise

They'll choose the franchise opportunity that seems to be getting the most press. In other words, it's a hot franchise.
They will buy a franchise that is aligned with their hobby, or passion.
They buy what they feel is the perfect franchise, because they can't find a job.
They will forget asking really, really, important questions."

Franchise System Trend: Older Generation Seeks to Become First Time Franchise Purchasers

In a recent article “Older Operators make a Mark on Franchisees” by Deborah L. Cohen she reports that there is a new,  fast growing trend that is starting to take place in todays world of franchised systems that is comprised of people between the ages of 40 and 55.  In fact, according to a franchise research firm FRANdata about 46 percent of people who have attended franchise expositions recently have been in that age bracket. 

Deborah L. Cohen’s article has many examples of, how she describes, “older operators who are becoming more typical at franchise systems ranging from fast-food chain to corporate cleaning services and retail outlets”.  Most of the examples in her article are of those who are in the 40 to 55 age bracket and were not previously entrepreneurs, in fact, the they are mostly of workers that were recently laid off of their jobs due to downsizing when the economy took a turn for the worst.  They decided they were done with all of the mergers and layoffs and decided that they were going to invest their money in something where they could own their own business but not be on their own and they found that comfort in a franchise. 

While buying a franchise may be an option for you if you were recently laid off or if you just want to own a business there are many things you should consider before buying a franchise.   In my blog post “Can (or even Should) you Buy a Business or Franchise to Replace a Lost Job?” I discuss questions you should consider before deciding to purchase a franchise if you were recently laid off of work. 

Franchise Trends: Recruitment of Younger Franchisees

In her article “In With the New” Wall Street Journal reporter Jonnelle Marte reports on a subtle but growing trend focused on a franchise “youth movement” .  Ms. Marte identifies two “service and advertising  base d” franchisors (Valpak Direct Marketing Systems, Inc. and WSI) focused on the development of “young” franchisors. 

Jonnelle Marte describes in her article that "Last year, Valpak created the Entrepreneurship Award Program in an effort to recruit young people who could open new franchises or take over existing ones as owners prepare to retire. The potential franchisees sign on with the company as salespeople, and if they hit certain goals they get a discount on their franchise fee. Along the way, they get to know the business and the company gets a sense of how they perform".  

While there are many components and factors to be evaluated in the purchase of a franchise, without question, the training of a younger generation coupled with real training "could"  be a good thing and, quite possibly, a win-win situation.  However, if the undercurrent and motivation for this trend is just to expand the base of prospective franchisees and sell to a young and inexperienced demographic then this "trend" could prove to be destructive.  For an informative take on this potential hazard, read the Franchise King's take on this "trend" in his post "Why are Franchisors Starting to Target Younger Prospective Franchise Owners?". 

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