I'm very interested in what I call "blue collar services" companies, things like the very popular lawn care, HVAC, roofing etc all the way down to dryer vent clean outs and specialty construction. I hadn't thought to pursue a company that was part of a regional/national franchise, but I've recently come across multiple franchise opportunities that seem relatively attractive.
Can anyone share their good/bad experiences, things to consider or watch out for, how to evaluate a franchise business compared to a standalone business?
Thanks for any insight.
Pros/Cons of Franchises?
by a searcher from The University of Michigan - Stephen M. Ross School of Business
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Experience with both franchises and acquiring independent businesses. Just a few thoughts:
Pros to franchises:
Your cost to acquire new cash flow CAN be cheaper.
You MAY be able to piggy back on an established brand and following.
A lot of front end support and on going quality control IF you pick the right brand.
In many cases, M&A multiples are more established within the network, making exchanges a little easier.
Cons to franchises:
They are still speculative and risky.
You will be stuck with the royalty and marketing fees FOREVER.
You likely will not have any control over many of your costs.
You may be limited by established brand multiples. (If you run your business far better than other franchisees, you may still be compared to their results.)
You may not have control of your territory and competitors within the brand.
Pros to independent businesses:
You have freedom from a corporate franchise structure that is designed to make money off of you, but not necessarily concerned with YOUR profitability.
By buying an established business, there should already be a built in clientele. It's like saving the first 5-10 years of startup.
You have complete control of the brand. (Even the ability to franchise!)
Cons to independent businesses:
You won't have a national support network of the franchisor and other franchisees.
M&A comps may be more elusive. (Pro AND con.)
Franchises are attractive to me for a young operator that can benefit from the extra hand holding. They are also attractive to me if you have a pile of capital and can develop and operate on the cheap with the intent to build a portfolio and sell or acquire the cash flow at a discount through development efforts.