Last week, I shared 5 must-ask questions to help you evaluate any franchise you’re thinking about purchasing. This week’s post is a followup for anyone who’s specifically evaluating executive franchises. These franchises are best for people who want to work on, rather than in, a business. Instead of working 40 hours a week, executive franchisees typically hire a team to handle the franchise’s day-to-day operations. If that’s the kind of arrangement you want, ask these questions as you look for your franchise match.
How many units do I have to buy, and when do I have to open them?
Most single-unit franchises don’t bring in enough revenue to support both a team of employees and an executive owner who’s trying to build wealth without working full-time. For that reason, executive franchisees are typically multi-unit owners. Franchisors vary, however, in their requirements for multi-unit ownership, so you should make sure you understand each company’s rules.
As you go through the evaluation process, you’ll review a Franchise Disclosure Document (FDD) and franchise agreement for each franchisor. These will tell you how much each franchise unit costs, how many you’ll have to open, and the timeline for opening them. For instance, a franchisor might require you to purchase a total of six franchises, opening three to start with and the remaining three over a five-year period. Such requirements are legally binding, so before you sign on the dotted line, make sure you have enough time and money to fulfill the terms of the contract.
Will my territories be near each other?
Every franchisor assigns territories to its franchisees. These territories may be as small as a neighborhood or as large as an entire region of the country. The franchisee usually has exclusive rights to open franchise locations within his or her territory. If you’re going to be a multi-unit franchise owner or area developer, you might assume that the franchisor will automatically assign you adjacent territories. This isn’t necessarily the case, however. Long-established franchisors, especially, may not have many adjacent territories available.
You should plan to visit each of your franchise locations at least once per quarter. If your territories are far apart, you’ll have to spend a lot of time and money traveling between them. You may also have a harder time dealing with emergencies or staffing issues that might arise. If you love to travel, however, or have a second home near one or more of your locations, you might be OK with disconnected territories.
Does this business have economies of scale?
Normally, franchisors won’t give you a price break for purchasing multiple locations. The per-unit price for a franchise is the per-unit price: if a single unit is $500,000, three will be $1.5 million. But you may be able to harness other economies of scale. If you have several units in the same city, for instance, you might be able to hire a single manager to oversee all of them. Or you might be able to find vendors (e.g., for your security systems or vending machines) that will give you a price break for signing up multiple locations at once. If your units are spread out, however, or each one has to have all its own equipment and service providers, you’ll have a harder time finding cost savings.
Will I have a hard time hiring a team?
The whole point of executive franchising is to generate income and build wealth without working full-time hours. To achieve that goal, you’ll need to hire a team of employees to handle day-to-day operations at your franchise locations. But that may be easier said than done, especially in an economy where the Great Resignation is remaking the labor market. That’s why I recommend keeping labor issues in mind as you’re evaluating executive franchises. Look for franchises in industries with plentiful labor pools, reasonable labor costs, and low turnover.
Ready to start asking these questions about some specific franchises? My co-consultant Lauri and I can help! Whether you’re looking to retire early, build wealth through a side hustle, or just gain some freedom in your schedule, executive franchising can help you reach your goals. Book a free call with one of us today to start the process of finding your perfect franchise match.
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