Common Sense Makes Good Sense When Evaluating a Franchise

ByMark Treptow- Buying a franchise business has become one of the most common vehicles to achieving the American dream.  No question franchising works but how does one go about making sense of all this?  Let’s take a stab at making it easier for you by suggesting we first take a look at where consumers are spending their money. 

Think about it this way…How many times a year do you get your hair cut, oil changed, car washed, house cleaned or taxes done?  Now think about how many times a year you eat?  Get it?  Every day billions of people wake up hungry and need to eat. We all know people, that no matter what the economy does, will continue to eat out.  I recently read a statistic that indicates meals at restaurants may become less expensive than meals prepared at home!  Which business would you want to be in?

My company, Fransmart, launched franchise programs for Qdoba, Five Guys, freshii and a number of other concepts.  We’ve got a bit of a track record for figuring out what the next great restaurant concepts are.  Over the years we have franchised restaurants in almost 50 states and more than 30 countries.    

Let me share my insider tips for evaluating a restaurant franchise. Some obvious points to look for are any kind of sales or financial performance data published in Item 19 of the franchise disclosure document. Not every concept, including many of the great ones, chooses to publish this information though.  A perfect example is the sandwich franchise, Jimmy John’s Gourmet Sandwiches with 1800 franchised locations and no Item 19.  So what do you do in this case?

It boils down to two common sense points.  The first is that the franchisor should have at least one proof of concept store they own and operate in a viable metropolitan market.  You want to join a system where the franchisor has already “done it” so you’re confident the menu is worked out, the operations are tight and everything continues to be thoroughly tested by the franchisor.  Slapfish, a southern California based “modern seafood shack” with multiple company stores is a great franchise example.

By having “skin in the game” the franchisor insures that franchisees don’t end up being crash test dummies for new menu items or operational procedures.  More importantly, no one knows better than the franchisor the income potential of their concept and if they think the best use of their capital is to build more company units or they’ve already invested in multiple company units, I would take that as a pretty good indication of their confidence in their concept.

The second condition is that the franchisor should allow you to speak with existing franchisees before signing agreements or paying franchise fees.  You want to engage them in conversation and listen carefully to their confidence in the brand and themselves since joining the system.  How happy are they?  Are they planning to build more stores?  Does the franchisor do what they say they will do?

The fast-casual segment of the restaurant industry has always been solid and continues to be the largest segment of growth in the industry.  There are a number of great restaurant concepts out there and it’s my hope I’ve given you a common sense top level approach to narrowing the field.  So choose wisely grasshopper…

As aSenior Director of Development at Fransmart, Mark Treptow has been able to help people all over the US & around the world reach their goals by starting a business or expanding their business through franchising the next great high growth restaurant concepts.  He has been instrumental in the growth of three successful start-up companies and has experience with financial services, private equity and business investing.  Mark is a former founding shareholder in a privately held QSR concept. Mark has been with Fransmart since 2008. Connect with Mark Treptow on LinkedIn