10 Best Franchises
How to Select the Most Profitable Franchise to Own
To select the best franchise one should start by evaluating the Franchise Disclosure Document (FDD). The Franchise Disclosure Document is a legal document which is available to prospective buyers of franchises in the pre-sale disclosure process. The FDD contains all of the information that state and federal franchise regulators consider relevant to a franchise investment, and it is the Holy Grail in researching the best franchise.
Information in the FDD ranges from the history of the franchisor and the business experience of its executives, to the fees that the company charges, to the requirements for purchasing inventory, to the form of franchise agreement, to three years of the franchisor’s financial statements. Pay special attention to Item 19 as it is a critical part of every franchise disclosure document. It provides a clear avenue for delivering performance information and must meet or exceed performance by its peers. Item 20 also gets extra scrutiny in our rankings to get the number of franchises and if they increasing or decreasing. Item 20 also contains contact information for current franchisees that we use to contact franchisees as part of our research.
Key Criteria for Selecting the Best Franchise
1. Bankability- Bankability is critical if like most of us you don’t have enough cash for the acquisition of a business and required working capital. Some franchises will qualify for the SBA Express Loan Program which offers streamlined and expedited loan procedures for borrowers. The SBA Express Loan gives small business borrowers an accelerated turnaround time for SBA review; a response to an application will be given within 24 hours. Check if the franchise under consideration is approved for an SBA Express Loan.
2. Proven Business Model – Item #20 of the Franchise Disclosure Document discloses helpful information that can be analyzed to validate the business model for growth and sustainability. Growth should exceed the growth of the overall economy.
3. Training – Strong training and support should be a big part of the franchise. The franchise will detail the training programs and systems in place to support the franchise. There may also be back office support, software, computer systems, group coaching, class-room training, mentorships, etc…
4. Scalability – Verify the Business Model has the potential to be scalable. Confirm the ability for the franchise to grow in profitability so that the owner can remove themselves from day to day operations. After the business has achieved scale, the owner can use the business to support their lifestyle or choose to grow to the next level. The franchises should afford the owner the opportunity to work on their business and not in it. Reputable franchises make themselves available to answer questions and provide information about their franchise. You may also speak with existing franchisees to ask questions and get real world experiences and challenges operating the franchise. Franchises can be profitable and outstanding investments, but picking the wrong franchise can be a financial disaster. Perform your own diligence and you can own a successful franchise.