The Franchise King®

Choosing A Franchise To Invest In: The Do’s and Don’ts

invest in a franchise business do's and dont's

Before I teach you the do’s and don’ts of choosing the best franchise to invest in, I want to share something my dad told me.

Dad:There’s a right way and a wrong way to do this, Joel.”

Me: “I know…I know.”

But did I?

Or did I say “I know” because I didn’t want to look stupid? Or I wanted to prove something to my dad? I’m not sure. But whatever the case, I used to hate it when my dad said that. And he said it to me more than once.

And you know why, right?

It’s because he was right.

With that in mind, I’m going to show you the right way and the wrong way to choose the best franchise to invest in. The do’s and don’ts.

(This post may contain affiliate links. Please read my disclosure policy).

 

Today’s Franchise Buyers Are Overwhelmed! They Don’t Know What Franchise To Invest In.

too many choices of franchises to invest in

Let me explain what I mean by “overwhelmed.”

But before I do, I have good news for you.

You only need to choose one franchise to buy. But I have bad news too.

There are over 4,000 different franchises available to invest in.

That makes searching and investing in the best franchise for you quite challenging. Especially if you don’t know how to do it.

Don’t worry. I’ve got you covered. I can help you select the right franchise.

 

The Right Way To Choose A Great Franchise To Invest In

There’s something else my dad told me.

Joel, if you’re going to do something, do it right.”

I eventually took his advice. And I hope you take mine.

To that end, choosing the right franchise to buy isn’t as challenging as you think it will be. Just follow my lead.

Let’s begin with the do’s.

1. Create a “wants” list.

To clarify, come up with a list of things that you’d like to have in a business.

For instance, would you like to invest in a business that needs only a few employees? Or would you prefer to own a home-based franchise business?

Another thing for your list? The age of the franchise brand.

In other words, what stage of the franchise cycle do you want to enter?

Other things to add to your list of franchise business wants can include the segment* of franchising you’d like to be in, along with what type of customers you’d like to provide products/services to.

*If you’d like some help choosing the right area of franchising to pursue, or anything else related to choosing the right franchise to open, reach out to me. I can help you a lot.

2. Look at your finances before you invest.

It’s crucial for you to take a hard look at your financial situation before you start your search for the best franchise to invest your money and time in.

The right way to do it? Put together a personal net worth statement. Just use my Free Net Worth Calculator. It’s easy to use as long as you have the information you need in front of you.

Then, once you’ve completed your net worth statement, you need to come up with a budget for investing in a franchise. But not just any, old, budget. I’m talking about a budget for the initial investment you’ll stick to.

Translation: the absolute upper limit of what you’ll write a check for (up front), including the Franchise Fee, along with the maximum amount of money you’ll take a small business loan for. Why?

So you can limit your franchise search to franchises you can afford to invest your money in.

 

What Are You Good At?

what are your strengths

3. List your strengths.

What are your top skills?

In other words, what are you great at?

Marketing? Accounting? Sales? Operations?

Now add your dominant personal traits to the list.

For example, are you outgoing? Compassionate?

Do you consider yourself to be detail-oriented?

Are you highly organized or freewheeling?

Tip: use this list of personal traits to help you jump-start your list of franchises to invest in.

Finally, it’s important for you to take your time with this list.

Reason being, once you’ve completed it, you can use it to start matching your skills and traits to franchise opportunities you’ll be able to utilize them in for maximum advantage.

4. Have the talk.

The best time to have “the talk“…that all-important discussion with your spouse/partner about your plans, is before you search for franchise opportunities. Why?

Because you need to have his or her support. And sometimes that’s not easy to get.

For example, maybe your “someone” is highly risk-adverse. The idea of getting a new job may be more in line with their comfort-level.

If that’s the case, you have some convincing to do.

That said, your idea of buying a franchise will have a much better chance of success if you come to the table prepared.

As opposed to, “Elizabeth, instead of looking for a new job, I’ve decided to buy a franchise instead.”

That almost never goes well.

 

How To Find High-Quality Franchise Opportunities

chart of the best franchises to invest money in

5. Make a good choice in a franchise to buy.

If you’ve done the things I suggested, it’s time to find and choose a franchise business opportunity to invest in.

One way to go about that is to use high-quality franchise opportunity portals like these. Especially since most of them enable you to do custom franchise searches.

To be more specific, you can filter your search by the total initial investment and franchise category (segment). In addition, some of the franchise websites categorize their franchise opportunities by how new they are.

Finally, once you’ve chosen some franchise opportunities to explore deeper, it’s time to do your research. Just use my helpful Franchise Research Guide to increase your odds of making a great choice in a franchise to invest in.

 

Using Proven Experts Is Always A Smart Thing To Do

6. Hire an expert to help you determine what the best franchises are for you to buy.

To begin with, access to knowledge and expertise is easier than ever. But you need to be choosy.



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The way to do that is by doing some research of your own.

For example, if someone says they’re an expert in franchising, use Google, Bing, or Duck Duck Go to find out if they truly* are.

*The thing about experts is that anyone can call themselves an expert.

Not only can someone “say” they’re an expert, all it takes is a few hundred dollars and access to the internet to put up a fairly professional-looking website.

For that matter, you can hire a ghost-writer to write a book for you on any subject you want. Just slap your name on it and sell it as your own.

So how can you determine if someone’s a real expert? Like say, a franchise expert?

Ahem…

In a nutshell, a franchise expert is a person who has been involved in franchising for many years, has… written numerous informational articles for authoritative websites and magazines, has had an original book (or two) on becoming a franchise owner published, is frequently contacted by reporters for expert insights and analysis, and finally, is considered a thought-leader.

For several years, Joel Libava has been an outstanding member of my Brain Trust, the largest community of small business experts in the world, representing the franchise industry. His perspectives and insights regarding this critical sector of the small business landscape have been invaluable to me and my audience. Clearly, Joel is one of the top thought-leaders in the world of franchising and an important resource for anyone interested this business direction.”

Jim Blasingame, President, Small Business Network, Inc

 

How Hiring One Of These Can Help You With Your Choice In A Franchise

use a franchise lawyer when signing franchise agreement

7. Hire a Franchise Lawyer.

I can’t think of one reason for a franchise buyer to read a Franchise Disclosure Document , sign a Franchise Agreement, and/or pay the Franchise Fee without consulting a Franchise Attorney. Not one.

Now, before you think about this too much, it doesn’t matter if nothing in the Franchise Agreement can be changed or crossed out. It doesn’t matter. Here’s what does.

The fact that you’re not a Franchise Attorney.

Enough said.

Not really.

First off, if the FDD contains a fair amount of negative stuff-like lots of lawsuits, or high franchisee turnover numbers, you may be about to choose a lousy franchise to buy.

Secondly, today’s FDD’s and Franchise Agreements are written by super-intelligent Franchise Lawyers. They’re complicated. Want proof?

From The Subway Franchise Disclosure Document (courtesy of the Wisconsin Department of Financial Institutions, and available free to anyone in the United States.)

If you do not own an approved location or lease an approved location directly, then we either designate a real estate leasing company affiliate to enter into the lease or license for the approved location and you sublet or sublicense from our affiliate or we or the real estate leasing company affiliate own the premises and directly lease or license the premises to you. If we or our affiliate act as landlord or licensor, we or our affiliate, as applicable, will derive rental revenues. If we or our affiliate act as sub-landlord or sub-licensor, we or our affiliate, as applicable, may derive rental revenues.”

Be honest now. Did you read that more than once?

Of course you did!

Hire a Franchise Lawyer.

In conclusion, the 7 things I just showed you, done right, will go a long way towards choosing the best franchise for you to own and operate.

That said, I imagine you’re chomping at the bit to find out what the wrong way to choose a franchise business opportunity to invest your money in is.

Right?

So read on.

 

Choosing Franchises To Invest In: The Dont’s

If you want to increase your odds of choosing a great franchise to buy and operate, here’s some advice on what not to do.

  1. Ignore well-meaning solicited or unsolicited franchise ideas from friends, lovers, or Facebook “friends.” Examples:

Terry, you want to know what I think you should open? One of those new (fill-in-the-blank) restaurants.”

Or

I hear that Linda’s Wing Express is hot now. You need to check it out! We definitely need another wing place here in Seattle

I know what you’re thinking.

Why should I ignore suggestions from people I know, Mr. Franchise King?”

Let’s go with math.

My thinking is there’s a 1 in 75 chance that folks with zero franchise business opportunity experience would know what’s “good” for a geographical area…or for you to invest in.

2. Don’t base your choice in a franchise solely on a “Top 300 Franchises” list put out by a magazine or a “Rankings” website.

Nor should you take any of those “Franchise Reviews” websites too seriously.

In the first case, an editor’s opinion of what the “Top Franchises” in any given year or category are, never take into account the business of “you.”

As in, who you are, how much money you have to invest, what you’re good at, and more.

As to franchise “reviews,” I strongly suggest reading this eye-opening article. It may save you a lot of future headaches.

3. If you decide to work with a Franchise Consultant, you need to understand who they work for. Because if you don’t…you better read this.

On the other hand, you could get lucky.

What I mean is you may run into a Consultant who finds a good, high-quality franchise to invest in.

If that end up happening, you need to reread the 7 tips I shared above. They’ll help you make the right decision on the purchase of a franchise-no matter how you found it.

Tip: Franchise consultants only represent a tiny sliver of all the franchises available for purchase. So don’t just look at the franchises they recommend. Find some on your own, too.

 

Educate Yourself On Franchising

4A. You need to have a solid understanding of how franchising works.

For example, you may need a reminder about how rigid the business model it is.

Why?

Because of you’re a free-wheelin’, make up your own rules type of person, buying a franchise will end up being an extremely painful experience.

he chose the wrong way to invest in a franchise

For starters, there’s that 10 lb.*, 325-page franchise operations manual you’ll need to follow.

*Maybe not 10 lbs., but it’s thick.

Then there’s the lack of creativity and control you’ll have, because the franchise business you own was conceptualized by someone else.

Plus all of those damn rules!

The best part?

You’ll need to sign a contract naming you as a franchisee for a 10-year period.

The second-best part?

You’ll need to pay a percentage of your revenue to corporate every month.

And as an added bonus, you’ll may need to pay another 2% for marketing. And that’s in addition to your initial investment.

For a business you own and don’t like.

Wait. Don’t like?

Yes. You don’t “like” the business because…see above.

The lesson here?

You need to understand what owning a franchise entails.

Finally, if you want to be your own boss, you need to invest in the right type of business for you.

Which may or may not end up being a franchise business.

Tip: Make sure you’re right for franchising by taking my Free Franchise Quiz.

 

4B. Warning: You need to ignore the following two words (that I share in the short video below recorded at Lexicon in Las Vegas), that some marketers and salespeople in franchising still use.

 

Franchise Ownership: When Will The Profits Come?

5. Don’t make the mistake of buying a franchise business thinking you’ll be able to quickly make money. It’s not going to happen.

That said, it’s not a slam on franchising. It’s just reality.

Reason being is that first you need to break-even.

And it’s only after your break-even point that some profits can start to be realized.

Furthermore, you’re probably not going to make that six-figure income you’d hoped for in year #2. Maybe not in year #3 either. This next sentence is important.

Franchise business ownership is a long-term play.

That is to say, don’t go into a franchise business thinking you’re going to make or exceed what you’re used to making in your 1st or probably the 2nd year in business*. It’s unrealistic and dangerous.

*I’m referring to a franchise startup.

If you invest in an existing franchise business, it’s a different story. In a good way.

Finally, if you’d like to see when you’ll break-even and become profitable, you need to put together a business plan. Doing so will help you a lot.

6. Don’t overextend.

If you have a net worth of $500k, don’t look at franchises to buy that require a $750,000 total investment.

That’s all I’ll say.

 

It Can Happen To You

7. Don’t pretend you’re made of Kryptonite.

You’re not.

There’s a chance things won’t work out. Stuff happens.

The economy can change.

The location you thought would be a home run?

Whoops.

It’s true…even franchise businesses fail.

But don’t despair, because I have some excellent news for you!

If you take to heart the things I talked about, and…I know this may sound crazy, talk to someone who can will guide you through the franchise selection, research, and buying process, you can greatly improve your odds of success.

Schedule Your Complimentary Call with me today. Because I can help you a lot.

 

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franchise article written by joel libava
Note: When you buy through links on this website, we may earn an affiliate commission. In addition, I've started to use AI to help me craft better article titles and headings.
joel libava

I'm The Franchise King®, Joel Libava. I help prospective franchise owners avoid bank account emptying mistakes.
For 23 years, I’ve been showing people how to make smart, informed decisions on franchises to buy, and I can help you, too!
P.S. I'm not a franchise consultant/broker.

Joel Wrote The Book
Joel literally wrote the book on becoming a franchise owner. He is very knowledgeable (and very forthcoming) about the ins and outs of buying into a franchise system. I recommend Joel for concrete advice on evaluating the business end of franchise opportunities ."
- Jeffery Fabian, Owner of Smart Content
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