I received an email from Franchise Research Institute, which provided its list of 25 “certified” World-Class Franchises for 2012. The criteria they established in their email were plausible enough (realistic expectations, which are consistently met or exceeded, selectivity, training, communication and ROI), although there is no way of knowing how many franchises were examined and how the pool was created.
Reading the list raises the eternal question of how to find the right business opportunity. We have written more than once about buying a franchise. But let’s move past the nuts and bolts of the actual acquisition. How would a businessman or woman of substance find a franchise system worth making a substantial investment in, perhaps in a multi-unit development or area development deal?
There is a conference in Las Vegas in April on that precise topic: the Multi-Unit Franchising Conference. You could start there and hear Don and Dave Shula speak about empire building. There are undoubtedly many franchisors there looking for possible investors. But the salesmanship on display there is intense. It would not be prudent to go there without a fairly clear notion in your head of what you are looking for.
There are many resources on the topic, such as Franchising.com’s Multi-Unit Franchisee, and much that has been written about the topic. For instance, take a look at Franchise Hound’s quick summary of the benefits of multi-unit franchising (economies of scale; territorial protection; familiarity with the model; marketing).
We represent multi-unit operators and area developers. The concept presents an attractive means of leveraging a substantial investment into a expandable business model with a proven track record. But moving into this area is more complex than a straighforward investment in equities and requires more extensive due diligence and expertise in the myriad agreements that come with the model: area development agreements, franchise agreements, operating agreements, multiple retail leases and countless vendor and supplier agreements. With the right advisers, it is all manageable and it can be enormously profitable with the right system. Franchisors find it attractive because they can deal with proven operators, although they do express concern about the power that can be wielded by a franchisee that controls a significant portion of a system.
The key, of course, is not dissimilar to buying a single unit: finding the right fit. Finding the type of business that matches your background and business experience, finding the geographical area in which you want to grow and finding a business sytem that has proven itself over a measurable period of time. As you start to narrow down your search, it can be helpful to talk to your franchise attorney to review the relevant FDD and financial statements and to identify what issues, if any, need to be addressed along with basic business terms.