You get a known brand, a tested way of working and a head start on the hardest parts of starting out. That excitement helps, but it works best alongside a clear head.
The investors who do well tend to ask the same handful of questions before they sign anything. Here are the five we think matter most.
1. Will the need last?
Trends make good headlines and shaky investments. Before anything else, ask what problem the franchise solves and whether that problem will still be around in 10 or 15 years. A business built on a fad, a single piece of technology or a passing habit carries risk, even if the opening month looks busy.
Hairdressing shows what a lasting need looks like. Hair keeps growing, so people keep needing a cut, whatever the economy or the latest technology is doing. Some people stretch the gap between visits when money is tight, but nobody stops for good. Put any franchise you are considering through the same test. Could a new app, a rule change or a shift in habits make the need fade? If you can’t answer with confidence, keep looking.
2. How often do customers come back?
A lasting need is half the picture. The other half is how often it shows up. A business that sees the same customer every few weeks builds a base it doesn’t have to win again each time. Ask how often a typical customer returns, how much revenue comes from regulars and what the business does to keep them. Repeat visits also make cash flow easier to predict, which matters when you are planning around rent and wages.
3. What will you take home?
Revenue figures are easy to love and easy to misread. Rent, wages, royalties, marketing contributions and other costs all sit between the top line and your own pay. Ask to see how a range of owners are performing, not just the best of them, then build your own numbers using cautious assumptions and have an independent accountant test them. Plan for a slow start too. Hold enough cash to cover the business and your household for several months, so a quiet first year is a plan and not a shock.
4. What systems are in place?
A franchise is only as strong as the systems behind it. Look closely at what you are buying. How do you train new staff? How are ordering, rostering, pricing and reporting handled? What marketing happens centrally and what falls to you locally? Good systems mean the business runs the same way on a quiet Tuesday as it does when you are away, and they free you to focus on customers and your team.
Then test the claims. Speak to current franchise owners, including long-standing ones. Ask what the systems do well, where they fall short and what support turns up when something goes wrong. Ask, too, how the system helps owners find, train and keep good people, because staff shape every customer’s experience.
5. How robust is the model, and where has it been tested?
A business that works in one town may owe its success to that town. A model that has worked in different cities, states and countries, with different rents, wages, customer habits and competitors, tells you more. It suggests the model is doing the heavy lifting, not the location.
So ask where the franchise operates and for how long. Ask how newer markets have performed against established ones, and what had to change when the business crossed a border. Transferability matters for you as well. A model that travels well is more likely to suit your local area, and it gives you more room to grow into extra sites down the track.
Nobody can promise that a franchise will succeed. What we can do is ask better questions before we commit. A sound opportunity will hold up under scrutiny, so take your time, ask for the numbers and speak to the people who already live the model. Investors who do this tend to buy with their eyes open, and that is the best place to start from.
Key takeaways
- Check the need will last: ask what problem the franchise solves and whether that problem will still be around in 10 or 15 years.
- Ask how often customers come back. Regulars build a base the business does not have to win again each time and make cash flow easier to predict.
- Look past revenue: see how a range of owners are performing, build your own cautious numbers, have an independent accountant test them and hold enough cash for a slow start.
- Test the systems by speaking to current franchise owners, including long-standing ones, about what works, where it falls short and what support turns up when something goes wrong.
- A model that has worked across different cities, states and countries suggests the model, not the location, is doing the heavy lifting.
This article comes courtesy of Just Cuts, an international hairdressing franchise with more than 230 salons across Australia, New Zealand, the United Kingdom and Canada.
