While there's no such thing as the ideal franchisee, here's what franchise companies look for to make their operations thrive.
The backbone of a strong franchise company is its network of owner/operators. A cohesive, focused and well-trained network of franchise owners can become a potent sales and distribution force for a successful franchise company. On the other hand, franchisees who inconsistently manage and market their products and services, or who don't share the goals of the franchise company and their fellow franchise owners, are destined for failure. Poorly selected franchisees put both the profitability of the franchise company and the operations of other franchisees at risk. For these reasons, successful franchise companies are meticulous about who they sell franchises to, carefully screening candidates. It is literally a life-or-death decision for their companies.
There is no such thing as the perfect potential franchisee, since different types of franchises require owners of diverse skills, backgrounds and financial status. However, if you are interested in owning a franchise, there are five basic characteristics deemed by BLACK ENTERPRISE to be key to successfully doing so. To see if you have what key takes to own a franchise, ask yourself the following questions:
1 Am I financially prepared to pursue franchise ownership? In addition to the initial franchisee fee and capital expenditures needed to get the franchise off the ground and running, franchisees must pay regular royalty and marketing fees to franchisors. Start-up costs alone for the 1992 BE FRANCHISE 50, which lists franchise companies by the most black-owned units in their systems, range from $2,495 (D&K Enterprises Inc., personalized children's books, Dallas) to as much as $1.4 million (Shoney's Inc., restaurant chain, Nashville). Many franchise companies also have minimum net worth requirements for potential franchisees. "Franchisers are looking for people who are bankable," says Aaron Shingler, president of Shingler-Hollis Investment Group Inc., a Washington, D.C.-based consulting firm that advises potential franchise buyers.
Franchise companies want people who can raise capital privately or qualify for financing, says Shingler. "Generally, most franchises are in two areas--service and retail, which are not easy to get financing for," he asserts. "In retailing, bankers sense the failure rate may be high. In service, the real asset is the person operating or managing the business."
Shingler says some potential franchisees often either don't have enough collateral or don't have the type of collateral, such as real estate or securities, that will make a banker feel secure. And contrary to popular perception, most franchisors don't provide direct financing or stand behind the loans of their franchisees, Shingler says. Bluntly put, if a would-be franchise owner can't get financing, a franchisor will consider him or her a waste of time.
Solid financing is necessary because franchise start-up costs can be prohibitive. For example, to buy a franchise from Donut Inn Inc.--a 17-year-old, Woodland Hills, Calif.-based company that sells donuts, bagels, other baked goods and coffee--start-up costs can be as high as $150,000, depending on the location, according to Stephen Blum, the company's vice president for marketing and sales. Prospective owners must supply at...