If someone is inclined to buy a franchise, whether for the independence or the wealth, a cleareyed view of what is being pitched is important. Here are some questions to consider.
Pick a Winner
For starters, analysts say, investors should ask whether the underlying industry is growing. But even in growth areas, not every franchise is a winner.
Franchising, like the economy, is cyclical. Data shows that the top growth areas for franchising include fitness centers, children’s educational programs and the general health sector; food, as a broad category, is ebbing.
Potential buyers should look carefully at federal disclosure forms that are required for franchises, paying particular attention to Item 19, which addresses the return on investment and the unit economics, said Jeff Johnson, founder and chief executive of the Franchise Research Institute.
The second big factor is whether branding will matter. Darrell Johnson of FRANdata said most people know their primary physician’s name but probably not the name of the doctor’s medical practice. Yet in an emergency, people are highly unlikely to ask for a doctor by name, relying instead on the reputation of the hospital or ambulatory care center.
Branding counts in some franchise areas, too, like home health services.
“Senior care is one sector where branding matters,” he said. “It’s hard to arrange something if I’m six states away. But there could be a consistency and expectation around a certain type of senior care.”
Do you have a winning idea of your own? A better opportunity to create wealth may be to become the franchiser by setting up a business that creates and manages your concept and collects fees from licensing and revenue.
Article source: https://www.nytimes.com/2019/10/25/your-money/franchise.html?emc=rss&partner=rss
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