Opening a new business is a major risk. There’s no guarantee that you’ll be successful. If you’ve got your eye on running your own business, but are wary of taking on the risks of business ownership without support, franchising could be a good path for you.

When you buy a franchise, you have the support and branding of the franchisor, which reduces some of the risks associated with new businesses. Still, there are risks in starting any business, even franchises. Be on the look-out for the following red flags as you evaluate franchises to invest in.

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Thinking about buying a franchise in 2017? If the idea of owning a franchise just popped up on your radar, it’s not a decision to be taken lightly. Read on to gain some insight into the steps you’ll likely need to take before committing.

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Nearly everyone who buys a franchise starts with the mindset that owning and running their own business will allow them to achieve some sort of personal goal or desire. Whether that goal is making a lot of money, having more free time, or being able to work from home, the desire for those things comes from within.

Starting out on the franchisee journey, many people explore business options in line with their personal passions or interests – food, exercise, outdoors, etc. are all examples in which there are franchising opportunities available.

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For many of us, the goal of owning a business represents a major life accomplishment we work toward for years. But whether it’s a scary headline in the media or a personal story of failure heard through the grapevine, owning a successful business in the real world can seem like a far off dream too difficult to actually accomplish yourself. While starting a business from scratch can be a huge uphill battle for many people, you don’t need to be an entrepreneur to own and run a successful business.

After years of experience in the franchising industry, we’ve learned that the biggest successes come from those that can think on their feet and have a true passion to create something great for the customer. For some, that means creating or presenting products to customers in a store, for us, it’s even simpler than that. Our franchisees give homeowners and businesses an on-site service experience they won’t forget.

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According to the most recent report from the International Franchise Association, there are an estimated 759,236 franchise establishments operating in the United States as of 2018. As shown in the chart below, the number of successful franchise businesses has been steadily rising for years. 2018 saw the most franchises since before the 2008 recession.

Number of Franchise Establishments in the United States (2007-2018)

The steady rise of franchising in recent years is due at least in part to what it offers business owners in a somewhat unstable, unpredictable economy: a more stable path toward success. Unlike starting a business from scratch, franchise owners hit the ground running with a proven business model, typically fewer startup costs, and a strong system of support. In short, it’s generally less risky if good decisions are made.

If you’re interested in franchising and have done any amount of research into possible opportunities, you’re probably asking the same question just about every other would-be buyer asks:

“What makes a franchise successful?”

Before we tackle this question, it’s important to realize that success in any business endeavor is completely dependant on you, the business owner, first and foremost. Making your business a success is never a guarantee and demands diligence, patience and perseverance on the part of owners and their teams.

Related: A Step-by-Step Guide to Finding the Right Low-Cost Franchise

If you’re confident you can devote the time and energy to growing a business, let’s turn our attention to that central question of what makes a franchise successful. We’ve broken it down into five important ingredients:

1. A franchise business model that has proven itself effective

One of the biggest advantages of buying a franchise instead of starting a business from scratch is the ability to see if the business model is actually working through the current franchisees. Just like any business, a franchise business model should have all the fundamentals in place:

1. • A target audience of customers. The business should be appealing to all kinds of customers, bit have its specific audience well-defined and narrowed down to just a handful of buyer personas––the types of people that want or need the service or product offered. For example, Lowes appeals to everyone has a hardware store, but its defined its primary target market to homeowners and builders. A good franchise will take a very similar approach.

   • Well-established business processes. Another huge advantage of franchising is that most if not all of the processes that make the business work have been figured out and refined ahead of time. Talking to current franchisees about how they run their business, and how well the franchises’ processes work is critical.

   • Resources to sustain the business. A franchisor should offer its franchisees the resources they need to carry out daily processes, find new customers, and grow. When talking to a potential franchisor and its franchisees, ask about the key resources you’ll likely need, such as a website, storage/warehousing, customer management systems, etc.

   • A strong value proposition. In short, how does the company stand out among its competitors? What is the value offered? Make sure any franchise you’re considering has established exactly what it offers and why it’s better than competitors.

You can be confident in a franchisor’s base business model when the company can point to multiple successful locations that all used the same process to get where they are today. Those that can clearly show that their franchise business model works in a variety of markets will have a huge advantage over businesses that only work in a specific area.

In addition to the business model, the other half of the equation is the return on investment it provides. Without the ability to give you earning power, there’s no point in moving forward with an opportunity, period.

When looking over your franchisor’s earning statements, make sure you’re looking at a minimum of 15 percent ROI based on the investment required.

2. Efficient operational and support systems

At its core, all businesses are a collection of systems working in harmony to achieve a goal. To evaluate a franchisor’s ability to run operations smoothly and offer good support when it’s needed, pay extra close attention to the sections of your Franchise Disclosure Document (FDD) explaining how these systems operate.

Highlight these operational parts of the business, in particular, when looking through the FDD:

• Training processes
• Recruiting/hiring procedures
• Marketing/advertising
• Inventory operations
• Purchasing processes
• and any other operational process involved with the business

In addition to assessing the FDD, reach out to current franchise owners to discuss the areas mentioned above, and operation/support systems more broadly. Do they find these systems work for them? Did they have to change them significantly on their own? Taking the time to figure this out ahead of time can save you much more time later on and help you spot red flags before any dotted lines are signed.

Related: 4 Ways to Advertise Your New Franchise

3. A long-term commitment

Scientific research into franchisor/franchisee relationships has shown that cooperation,
information exchange, trust, and commitment are among the most important factors for successful long-term relationships.

“…franchisors and franchisees who cooperate and share useful and, in general, quality information trust more in their partners.”

Unlike going it alone with a business you’ve started yourself, franchising means building a relationship with your franchisor. While all business relationships sometimes bring tension at times, it’s important to be sure you can communicate problems to your franchisor and be confident in their ability to help you solve them. Growing pains will be inevitable, so it’s on you and the franchisor to develop a relationship that can overcome the challenges when they arise.

This can be more difficult to get a feel for during your research. Instead of relying on your FDD, ask existing franchisees for firsthand experiences about their relationship with the franchisor. Be sure to reach out to existing franchisees with any questions you might have before deciding on an opportunity.

Free Guide: What it’s Like to be a Groutsmith: a Q&A with 8 Franchise Owners

4. Market saturation

Market saturation is the degree to which the company has penetrated their particular market. Generally speaking, the less they’ve saturated their market, the more opportunities there are to grow.

This is a big reason many prospective franchisees decide to invest in smaller brands with fewer locations, rather than household names that have hundreds of locations all around the country. When looking for the right low-cost franchise opportunity, look for a brand that has big potential with a great product and service people need, but are still in the early stages of expanding.

The Groutsmith: A recipe for franchise success

Here’s how our franchise opportunity, The Groutsmith, offers a real-world example of all four ingredients for franchise success:

• A franchise business model that has proven itself effective. We have over 40 franchisees operating Groutsmith businesses all over the country. Some of our franchisees have been growing their businesses for many years. One of our first franchisees, Mike Ketzner, is projecting to do $1 million in sales in 2018. Read his full story here.
• Efficient operational and support systems. Since first presenting our franchise opportunity many years ago, we’ve been refining and perfecting a wide variety of systems our franchise owners use to run and grow their businesses every day. Grab our free Q&A guide and learn how Groutsmith franchisees use these systems throughout their businesses.
• A long-term commitment. Our very first franchise owner is still growing his Groutsmith franchise today. Grab our free Q&A guide or read our success stories to hear what our owners have to say about the relationships they’ve developed over time.
• Market saturation. The Groutsmith operates franchises in 16 states––many of which with multiple locations. All of our franchises are established to ensure you receive a large, protected territory and an opportunity to grow beyond it.

Here at The Groutsmith, we offer a unique low-cost franchising opportunity to those looking to hit the ground running with a proven franchise business model. Our training program is designed to transform anyone into a grout and tile specialist capable of delivering outstanding service and products to customers.

Interested in a low-cost franchise opportunity driven by a business model that has proven itself effective all over the country? Click here to learn how The Groutsmith differentiates itself from the competition or contact us today to start a conversation about starting a franchise of your very own.

Other helpful articles:

• How Much Low-Cost Franchise Owners Make: A Quick Guide
• 3 Reasons Why Home Services Franchises Provide Excellent ROI
• How Does Franchising Actually Work? A Quick-Guide
• The Pros and Cons of Buying a Well-Known Franchise Brand

Looking to learn what it’s like to own a Groutsmith franchise? Get a first-hand look from eight franchisees in our free Q&A guide. Click below to download.