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How to Buy a Franchise: Five Steps to Identifying the Right Market

As you research how to buy a franchise, keep in mind that identifying the right market for your business is one of the most important decisions you will make. Few factors can single-handedly make or break a business, no matter how many things you do right, like location. Selecting the ideal spot is just as critical as your product, staff and marketing. It sets the tone for your business and impacts what consumers think of your brand.

Finding the perfect location is something all owners must face, whether building their business from scratch or joining a site-based franchise system. Although the amount of support varies from company to company, most franchisors do provide a certain level of assistance. This help can be a big boost to getting your business off on the right foot. But, before you dive into the “where” of your location, you need to consider the “what.”

Select a Franchise Concept

Franchise concepts come in many different shapes and sizes. Franchisors often offer a variety of options to allow their franchisees to select the type of location that best meets the needs of customers in their community. Two of the most popular location set-ups are traditional and non-traditional.

Traditional Locations

Traditional locations are typically free-standing, meaning the business is located in a building used solely for the purpose of that business only. Such locations usually have their own dedicated parking lots.

Non-Traditional Locations

Non-traditional locations operate in a smaller footprint, typically within the confines of another property like a mall, airport, college campus, military base, hotel, convention center or a store in store within a smaller business like a pharmacy or hardware store. Non-traditional locations can also include carts and kiosks. This type of setup can be one of the best ways to get started in franchising since these locations often have reduced franchise fees, lower overall startup costs, lower real estate fees and require fewer employees.

Once you determine the type of location you would like to open, you can focus on identifying the right market. Here are five steps to help ensure you’re setting your business up for success as you learn how to buy a franchise.

Identify the Right Market

  1. Compare urban areas and rural communities – Rural markets are smaller and generally mean fewer customers, but that can actually work to your advantage. Fewer customers also means fewer businesses, which means less competition and increased visibility. Affordability is another advantage of a rural market. The cost of doing business tends to be lower than in urban areas thanks to cheaper real estate, utilities and other operating expenses. Some franchisors even offer financial incentives to open a location in a rural market, which can help boost profitability.
  2. Assess the competitive landscape – Are there businesses similar to the one you would like to open nearby? Depending on the level of demand in the area, competition could actually be a good thing. You might be able to secure the customers the others can’t accommodate. If there aren’t any similar businesses nearby, consider why. A lack of competition could indicate that there aren’t enough customers in the area to support the business.
  3. Consider accessibility and visibility – Factor in how easy the location is to find and get to by car as well as via public transportation (in urban areas). If the location is away from the main shopping area or tucked behind another business, it could be easily overlooked by customers. Also consider traffic patterns - how often people frequent the area and what brings them there like sporting events, movie theaters, retail shops, etc.
  4. Evaluate the neighborhood – Find out what the surrounding neighborhood is like. Is it up-and-coming or regressing? Check with the city or community planning office to find out what future construction projects are planned for the area and review zoning regulations to ensure there are no limitations that would impact your business. Also, look at the demographics of the area. Be sure enough of the population matches your customer profile to support your business.
  5. Review your budget – Depending on the area, how much you can afford could have a significant impact on location. Keep in mind that the rent or lease alone isn’t the total cost; there may be additional taxes or fees. The amount and type will vary depending on the location and whether you buy or rent. Don’t forget to factor in the average cost of utilities and insurance as well as hidden costs like renovations or upgrade installations, building maintenance and security.

Although most franchise systems assume you’ll do most of the legwork when selecting a location, the process is usually a team approach between you, the franchisor, a real estate agent or broker and a lease attorney. Some franchisors help alleviate the stress of identifying the right market by maintaining listings of open markets prime for development as well as existing units that are up for sale and ready for business. Perhaps one of the most helpful things you can do is to talk to existing franchisees about their experience opening a franchise location. This will help set expectations as you learn how to buy a franchise to achieve your dream of ownership.