Buying a Service Franchise? Some Things to Consider

from Lori Karpman, President, Lori Karpman & Associates Ltd.

Service franchises are businesses that provide services (as opposed to products), to both individuals and other businesses.

Business service franchises provide their services solely to other businesses and are commonly referred to as B2B. These franchises are offered in a vast variety of categories and industries.

For example, there are franchises in accounting that provide their services to many types of businesses, and there are also franchises such as home health care or cruise travel that cater to a very specific market. The rapid growth of home based franchises is not coincidental but due in large part to the growth in the sales of B2B franchise opportunities, which are largely home based. Given that the service industry is highly competitive, buying a franchise with a proven system, a strong brand and effective marketing support will increase the chances of success substantially.

All over the world at 5:00 pm, people run from their desks to escape from a job they hate wanting a different lifestyle and control over their life. These people are perfect franchise candidates. The common denominator between them is that they have usually amassed a skill set acquired over many years in the corporate world, or on the job and now want to monetize those skills in the form of their own business. Additionally, many have also acquired skills in marketing, accounting, office management, customer service, and organization that prepare them for their new leadership role. It’s not uncommon to see a CEO of a Fortune 500 company leave their position and become a franchisee of a consulting franchise.

B2B’s also tend to be on the lower end of the cost spectrum, requiring less in start up costs and significantly less to operate daily than a bricks and mortar business. The owner has complete flexibility to schedule their work hours around their children or other obligations. Additionally, the franchisor provides the franchisee with all the missing skill sets especially in back office business operations or marketing, which franchisees may not have had to do in their previous positions. Afterall, in order for a business to become a viable franchise, it has to be able to train almost anyone to run one of their businesses even if they have no experience in the service category.

Interested in Buying a Service Franchise? Here are some initial thoughts to consider:

1. Change can be uncomfortable. Years of comfort in the corporate arena often makes it hard for individuals to make the leap from employee to franchisee. If the purchase is in the individual’s area of expertise, then the leap is a little easier. I always recommend purchasing a franchise in an area in which the franchisee is passionate. It is much easier to put in the time and energy required to grow the business if the franchisee is passionate about what they do.
2. Investigate the tools is the franchisor providing. Franchisors are required to provide franchisees with complete training including (1) how to run the business (back office, accounting, and all internal systems) and (2) how to build the business (marketing tools, campaigns, materials etc). It is essential that the franchisor trains the franchisees on how to generate leads, how to sell, close sales and generate repeat business. Franchise training assumes that the franchisee comes to the table with zero knowledge and any that they do have is a bonus. This is why franchising was created in the first place: to allow individuals to get into business by using someone else’s system to generate income.
3. A real advantage of the franchise model is not just what you get from the franchisor. Franchisees also get to tap into the resources and knowledge of all franchisees in the system. This sharing of information allows franchisees to assist others by trading marketing ideas, templates or new software for example. Most franchise systems are filled with corporate deserters turned successful franchisees and are delighted to be able to assist others in building their business. They also understand the typical growth progression of the business.
4. The most important factor to the success of a service business is the definition and details of the Territory. It is this that will determine the potential revenue value of the business. The area must be large enough to produce enough revenue to meet the franchisee’s expectations and financial requirements for the life of the term of the agreement. Some information to assess is: (1) Is there an exclusive territory and if so, (2) how much business can be generated in that market. (3) Is there a clause that says that the franchisor cannot open another franchise within a certain distance from the location to be purchased? Is there a radius clause? A non-compete clause and if so, for how long? The bottom line is this-depending on the type of service, the territory will be calculated differently, there has to be enough business in the territory to earn substantial revenue for the term of the franchise agreement.
5. Equally important is, how comfortable the franchisee is with selling and client relationships. Being a franchisee is not a desk job. Franchisees must be willing and comfortable making sales calls, dealing with unhappy customers, networking and doing what needs to be done to generate business, especially repeat business. Sales and customer service skills often cannot be taught in a training course; the franchisee must come to the table with these skills needing only to learn the techniques particular to the nature of the franchise. As there are often no bricks and mortar locations, business does not walk through the door, the franchisee has to go get it.

These considerations are by no means exhaustive but they are at the top of the list of things to consider in the purchase of a B2B franchise.

An internet search of B2B franchises will bring up hundreds of options too many to discuss. However, the newest and fastest growing category is “Business Consulting”, where specific areas of expertise are offered. Let’s have a quick look at a few options:

• General Business Consulting. The typical franchisee is someone who is or who has worked for (typically large) companies or has completed mandates providing overall strategy and business development for business and high level executives. These candidates are well rounded and can offer a variety of services and advice based on their long history of consulting. These people often work for consulting firms and are looking to have their own lucrative practice. In some cases, people have their own consulting firms already but are not doing as well as they would like so they decide to buy a franchise for the brand name and system it provides.
• CEO Support Groups. Though they have been around for a while, theses are really catching on. These franchises facilitate interaction, learning and support between business owners/executives. The franchisee typically recruits about a dozen executives who meet monthly to discuss issues and compare notes and generally help each other out as they have common interests. To qualify as a franchisee, the candidate must have senior executive experience and leadership qualities honed preferably in the corporate environment.
• Specific Cost Savings Consulting. These franchises are extremely specific and generally are best left to those with particular expertise and skills. The one most people may know of is in tax savings or general expense reduction. There is no cost or risk for that matter to the client, since the franchisee earns a percentage of the amount saved. Often tens of thousands can be saved for companies just in utilities, bar counts, expenses, and waste in a restaurant situation.
• IT/Business Component/Internet Marketing Focused Consulting. These franchises provide technology services in a particular area of businesses. They can be anything from software creation to social media marketing to website creation or call centers, just to name a few examples. Most business owners are not that tech savvy and even if they are, they should not be spending their time on technology or learning how to use a sales funnel. They should be spending their time generating revenue and outsourcing these types of tasks. The franchisee of this kind of franchise usually has an acquired skill set in the area of services provided.
• Business Staffing Consulting. This category was one of the first of its kind in B2B franchises and is still growing. Businesses always need staff and with all the online sites there are to search, most business owners get overwhelmed and decide to outsource the work. As the labour market grows and unique skill sets are created, businesses need this resource more than ever and this accounts for these franchises becoming increasingly popular. There is an acceptance in the marketplace of the concept of “outsourcing” personnel and many companies use outsourced staff to keep labour costs minimized and margins maximized.

There is something for everyone in a business to business service franchise. People coming from a corporate environment have a lot of options and like the B2B ones where they get to connect with likeminded business owners. The likelihood of success is also higher as franchisees are selling a skill set that they have already mastered and can communicate with potential clients intelligently and with confidence.

In many cases, depending on the service, the sales cycle is shorter providing the business with a consistent cash flow which is a very attractive element of any business purchase. Couple that with working from home and a lower investment overall and there are very good reasons to look into this category of opportunities.
Owning a service franchise can be very lucrative provided, as in any other franchise that the franchisee follows the proven operating System they bought. When franchisees derogate from it, the losses begin. Franchisees forget that they bought the franchise “because” of the System. The real secret to success is no secret at all, it is simply this: If you work the System it will work for YOU!

Wishing you the Best of Luck in your New Service Franchise!

Lori Karpman, considered one of Canada’s leading experts on franchising and multi-unit business development models, is also the President/CEO of the multi award winning consulting and legal services firm, Lori Karpman & Company. During her esteemed career, Lori has been a franchisor twice and the Master Franchisee of the Pizza Hut brand for the Province of Quebec. The firm’s clients range from the Fortune 500 brands to the local start ups. Lori is a prolific writer and sought after guest speaker and has been featured on television, YouTube and radio.