What I Wish I Knew Before Buying a Franchise

By Eric Stites

Dennis Monroe had worked in operations management for over 30 years when he decided to buy a ColorAll franchise (an on-site auto body repair service) with his business partner. The pair owned and operated their ColorAll franchise in Phoenix, Ariz., for nine years before exiting the business and retiring.

Looking back on his franchise experience, Monroe says he would do it all over again—but with a few alterations.

Labor challenges can cripple a business

“Our franchise was initially very successful,” explains Monroe. “We landed large, national accounts, but eventually, due to poor tech performance, the business went downhill.”

One of the reasons for his business's decline was the unexpected challenge of having to hire skilled employees. “In our case the biggest problem was the unpredictability of auto body tech’s quality and responsible customer relations, which ended up costing us a lot of very profitable customers,” says Monroe. “I had no problem finding customers who appreciated the value and convenience of our service, only to lose many of them because of the tech’s job performance.”

Hiring can be a top challenge for many business owners. While it is often most pronounced in the food and beverage industry, where low unemployment rates and increasing wage pressures have left restaurants scrambling to find the help they need, it is prevalent across almost every sector.

In senior care, for instance, hiring challenges have been spurred by the rising numbers of aging Americans. “For national senior-care franchises, recruiting thousands of skilled, dependable caregivers to match the specific needs of each family is no easy task,” says BrightStar Care, a national private duty home care and medical staffing franchise.

In the automotive space, hiring challenges are evolving as the automobile undergoes a rapid transformation, becoming more than just a transportation tool, but a “powerful digital device,” according to an article by PwC. While Monroe struggled with finding competent technicians, many in the automotive space today need workers with an entirely new skill set.

A common misconception of franchising is that all of the hard work has been done for you, but as Monroe explains, “You can’t depend on the franchisor to make your business successful. The corporate franchisor should provide training, startup support, national marketing, and name recognition, but it is up to the local franchisee to make the business work and create profitability with its customer base.” A large part of this, of course, is hiring.

Finding skilled workers who will represent your brand well and treat your customers right, while also providing excellent service, is a tremendous challenge for any business owner. However, as Monroe discovered, if you’re in an industry that depends on skilled talent, the inability to secure that talent can quickly cripple your business.

Before you buy a franchise, your contract should be considered long and hard

While Monroe struggled with finding quality talent to keep his business afloat, he says that owning a franchise offered him great independence and personal satisfaction. The experience was so positive for Monroe, that despite his issues with underperforming technicians, he says he would do it all over again. He also says he would choose a franchise with less dependency on tech performance, and negotiate more favorable contract terms up front.

An attorney can help you evaluate terms in the franchise agreement and the company's Franchise Disclosure Document (FDD). There is a lot of information covered in a franchise agreement and the FDD; a few areas that should be looked at closely include the royalty payment structure, the right to close, the right of first refusal, litigation statue of limitations, non-compete clause, and franchise territory, to name a few.

Not all franchisors will be open to negotiation. Still, it is always in your best interest as a prospective franchisee to evaluate franchise documents closely, and with the help of an experienced franchise attorney.

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It's also important for prospective franchise owners to speak with current and former franchisees during the research phase. The insights franchisees provide can be invaluable, and it’s advice that many franchisees willingly will offer to interested new owners.

As Cindy and Phil Bacon, franchisees of FASTSIGNS say, “Do your due diligence and contact as many franchisees as possible.” Heather and Seth Allison, franchisees of American Poolplayers Association similarly advise, “Talk to other franchisees first to get their perspectives, and make sure your franchise is well-established and highly rated.”

Franchise opportunities offer a pathway to business ownership—and potential profitability—for interested entrepreneurs. Choosing the right franchise and structuring your agreement so that it fits your needs long term can be a challenge, however. And this is why it is so important to speak with current and former franchise owners, who can offer a wealth of information and insight into the world of franchise ownership.

RELATED: Buying a Franchise vs. an Independent Business: What Are the Pros and Cons?