Due diligence is crucial when deciding to buy a franchise. No one knows
that better than Pete Lindsey. Twenty-four years ago he began his career
as a franchise owner. Today, he is Vice President of Franchising at Sport
From owning a single business to helping thousands of people become owners
themselves, Lindsey understands the franchising process from beginning
to end. Having walked the road himself, he has exclusive insight that
comes from the experience he now offers to franchisees who are at the
beginning of their journey.
Until 1991, Lindsey owned a Mail Boxes Etc. franchise in National City,
California. After establishing a successful business and serving as the
president of the local advertising co-op, MBE made him a key member of
their operations department. There Lindsey was instrumental in one of
the largest franchise rebranding efforts in history: when Mail Boxes Etc.
transitioned into The UPS Store.
He made his move to Sport Clips in 2011 for a simple reason: “I saw
the direction Sport Clips was heading and wanted to be a part of it. I
respect what Gordon Logan [Sport Clips CEO] is doing with the brand and
am ecstatic to be a part of a family-run organization.”
Drawing from his wide-ranging experience, Lindsey shares
five things he would look for in a franchise if he were starting as a franchise owner
in 2017. His insight provides an invaluable look at what franchisees should
consider when evaluating business opportunities.
1. Consider Quality of Life
Potential owners should understand the quality of life the brand offers.
For example, Sport Clips offers a semi-absentee business model, which
requires less in-store time from you. On the flip side, owner-operated
franchises require the owner to be hands on with the day-to-day operations
of the business. In addition to time commitment, certain businesses provide
different levels of potential profit margins and revenue. More importantly,
make sure the goals of the brand match up with your own goals. As long
as those are aligned, long-term prosperity will be much more attainable—and
To learn more about the different types of franchise ownership and how
they match up with your personal and financial goals click here.
2. Review Company Store Operations and Financial Performance
If the franchisor operates their own stores, examine how these stores operate
to gain powerful insight into the business. Are their stores more or less
successful than their franchised locations? Do they operate in markets
side-by-side with their franchisees or do they operate in designated markets
to avoid direct competition? A strong financial performance representation
in Item 19 of the franchisor’s Financial Disclosure Document (FDD)
should provide enough detail to allow you to create a pro-forma that will
provide an idea of future financial performance. Use this information
to validate with existing franchisee’s to ensure your projections
are in line with their actual experience. While it is not mandatory for
a franchisor to disclose this information, if an FDD does not have an
Item 19, that should raise some questions.
3. See How Many Existing Franchisees Are Expanding
Franchisee expansion is a good sign. When existing owners are spending
their resources on expanding their business, the local market is healthy
and the franchisees are happy with their investment decisions. Talk to
the franchisor’s representative about existing franchisee growth
records. How many franchisees own multiple units and how many units does
the average and/or largest franchisee operate?
4. Pay Close Attention to Item 20 in the Franchise Disclosure Document
Item 20 displays how many locations opened, closed, chose not to renew,
or were terminated in the prior three years. This information is broken
down by state and will give a clear look at how the brand is growing.
Item 20 can also provide insight into the “personality” of
the franchisor. A large number of terminations or non-renewals may suggest
a combative franchisor-franchisee relationship. A large number of closures
may suggest widespread or regional operational challenges and is something
you’ll want to investigate thoroughly.
5. Check the Franchise’s Transfer Rate
Also in Item 20, you will find the number of franchise transfers by state.
It is important to look at this rate in context. First, understand transfers
are not inherently a negative thing. There are many reasons a franchisee
may decide to sell. Life changes happen, successful owners decide to cash-out
on their investments and, yes, some franchisees may be struggling or simply
decide the model isn’t right for them. In any case, a low transfer
rate may suggest franchisees who want to sell are having a difficult time
finding prospective buyers. A high rate may suggest a lot of unhappy owners
are looking to get out. Look for a healthy percentage between four and
eight percent of the brand’s total number of locations. If existing
franchises are buying the stores, this could be a very good sign.
Conducting a due diligence before entering into a franchise agreement will
better position you to make an informed decision. With these five tips
from a seasoned franchising expert you should be in a better position
to evaluate any opportunity before signing a franchise agreement. To learn
more about what Sport Clips has to offer and what it means to be part
of our team
contact us here.