Step-by-Step Guide to Buying a Franchise
Step 2: Understand Important Franchise Trends
This step will help you identify key trends that will impact your franchise decision.
In 2009, some of the major trends were severe economic conditions, the aging population, the crisis in health care, the residential real estate meltdown, turmoil in the credit and financial markets, the “green” movement, increasing economic power of immigrant groups in the United States (especially Spanish-speaking populations), globalization, and rapid innovation and adoption of technology.
Good sources for getting a perspective on these trends include The Wall Street Journal, The Economist, BusinessWeek, Fortune, and other national business magazines. Also study the Bureau of Labor Statistics and U.S. Census Bureau data for information that could relate to your opportunity.
Once you have a good handle on national trends, it’s time to dig up local information and research your specific geographic area. Google “[your geographic location] economic outlook.” Contact the local chamber of commerce. See if you can uncover research that’s specific to your particular opportunity. There are many private research firms that provide consumer data in your area. You may be able to get local market research for free from the provider, the franchisor, or a franchisee association.
You should also compile local information on the types of employees you’ll need to hire. Wander around the neighborhood where you’re most likely to acquire your business. How many “Help Wanted” signs do you see in the types of establishments that are employing your prospective employees?
Analyze 1) how challenging it will be to recruit employees for your business and 2) whether you’ll need to pay above-market salaries and how high your turnover will be if other employers take your best workers.
Before you invest in an opportunity, you need to have a clear understanding of the legal and governmental trends that may have an impact on your operations. Pay special attention to the following:
- Community development plans: Local politicians may be working with developers to improve a neighborhood in the area where you’re hoping to buy your franchise. How could that affect the opportunity you’re considering? Perhaps your neighborhood could suffer if a nearby neighborhood experiences significant renovation or gentrification.
- Employment legislation: Many local governments are creating laws and ordinances mandating employer-paid health care and other benefits. This could dramatically increase your labor costs.
- Regulation: If you deal with hazardous materials, food, the elderly, or a large number of hourly workers, you need to factor in the costs of complying with different government regulations.
- Permits: Do you need special licenses or permits in order to operate? If so, how much do they cost and how long does it take to get them?
Also keep an eye on the Employee Free Choice national legislation. If this is passed, it could make it much easier for employees to unionize small businesses.
Continue to Step 3: Select the Best Franchise System for You
Return to Step 1: Determine Your Suitability as a Franchisee