Franchise Brokers Association BLOG

Demographics Studies for Opening a Small Business

Small businesses are hugely important to our current economy.  Small business contributes to our GDP, increases the number of available jobs, and enrich our local communities.  It’s hard to find someone who is not a big supporter of small business, and increasingly we are finding more and more people who are interested in being entrepreneurs.  Business ownership is very appealing, it makes you the decision maker.  You are the last to get laid off and the first to know when problems are on the horizon.  You can approve your own vacation time, raises, perks and schedule.  You also get the advantage of choosing your coworkers, if you even want coworkers.

Once you get excited about the idea of owning your own business, there is the understandable question of can my business survive in my area?  Do I have the audience and the clientele to support the business I want to open?  Franchise Brokers can help with that.  Franchise businesses are great at helping their franchisees choose the best businesses and locations for them and their region.  You know the old adage “more is less?“  Well, when it comes to information more is, well, more…and better.  In addition to the assistance and support of the franchisor to choose the best location for your business, members of the FBA can also provide you with access to demographics reports and studies that can help you determine the viability of your business in your location.  What’s the makeup of your community, age groups, gender, income levels, population density, etc.?  Would a sports bar and grill thrive in your area?  How about a clothing boutique, sandwich shop, marketing firm, or B2B business?  Demographic reports can give you great insight into the future success of your company.  It’s important to have the help of a professional when reviewing this information, as well.  Having the information is the first step, deciphering it and understanding how it impacts your business in the next.  Brokers and consultants are the professionals that can help you glean the information you need from these materials.

Interested in looking at the demographics for your region?  Contact one of our members by going here and filling out a request for information form.

Becoming a Trusted Advisor

The second lead that my referral source (who we met in the first post in this series) sent me came into my office to meet me.  He and his wife had traveled a long way and were vacationing nearby.  Before we met in person, they sent me an e-mail with information on a franchise they were interested in.  It was a franchise that was not in the Franchise Brokers Association’s Approved Franchise list.

They sent me the FDD of the franchise.  That was all I needed; I began my research and read the FDD (a 200+ page document that is governed by the FTC, also known as a Franchise Disclosure Document).  I used the one hour of complimentary legal services that our attorneys at the FBA provide all members’ clients.

In reviewing the information, we found out that the Franchisor’s name was not a valid trademark and in fact the trade name was owned by another company.  This meant that any Franchisee that was in that system was operating under a name that violated U.S. Patent and Trademark Law.  That could be detrimental to my client’s business.

Can you imagine buying a franchise for the brand name recognition then, after 7 years in the business, you are sued for operating under the name you bought from the franchise?  Then you would be forced to change the name of your business and pay for all re-signage, penalties and other fees.  What a mess that would put you in!

That’s not all.  In doing the research we found that 35% of all Franchisees in the system had failed. That meant that my client had a 1 in 3 chance of not succeeding. Yes, a large part of the Franchisee’s success is their work effort and determination, however we need to make sure that the Franchisor knows exactly what to do to help willing Franchisees.

Next we found out that every Franchisee in the system was operating differently.  They were not “following the system” as the Franchisor explained.  The problem with that is that it is the Franchisor’s job to:

1) Make sure the system works

and

2) Make sure Franchisees are doing their best to stay on track with the system

The fact that all of the Franchisees were operating differently told us that the system wasn’t a system at all.

We also found out that this Franchisor had hundreds of franchise concepts under their belt.  They were a company that simply sold franchises and didn’t necessarily have the experience of operating the types of businesses they were selling.  After uncovering all of these things, we decided that the risk was far too great to go with this system.  The franchise was by no means a bad franchise, it simply too risky for this client.

As the client walked in, I was prepared with this information.  As you can see, very quickly they realized the importance of using a good franchise consultant.  They were relieved and were ready to find something that was a better fit for their risk tolerance and financial goals.

Learn more about using a Franchise Broker here.

Learn more about becoming a Franchise Broker here.