The best franchise selection process should start by evaluating the Franchise Disclosure Document (FDD), which is a legal document available to prospective buyers of franchises in the pre-sale disclosure process. This document aids in determining the best franchise to buy. The FDD contains all of the information that state and federal franchise regulators consider relevant to a franchise investment, and it is the Holy Grail in researching the best franchise.

Franchise Disclosure Document

Information in the FDD ranges from the franchisor’s history and the business experience of its executives to the fees that the company charges, to the requirements for purchasing inventory, to the form of the franchise agreement, to three years of the franchisor’s financial statements. Pay special attention to Item 19, as it is a critical part of every franchise disclosure document. It provides a clear avenue for delivering performance information and must meet or exceed performance by its peers. Item 20 also gets extra scrutiny in our rankings to get the number of franchises and if they increase or decrease. Item 20 also contains contact information for current franchisees that we use to contact franchisees as part of our research.

Criteria for Selecting the Best Franchise to Buy

1. Bankability

The more a lender is willing to fund a business, the more bankable it is. Most people don’t have enough cash to acquire a business and require working capital. Some franchises will qualify for the SBA Express Loan Program, which offers borrowers streamlined and expedited loan procedures. The SBA Express Loan gives small business borrowers an accelerated turnaround time for SBA review; a response to an application will be given within 24 hours. Check if the franchise under consideration is approved for an SBA Express Loan.

2. Proven Business Model

Item #20 of the Franchise Disclosure Document discloses helpful information that can be analyzed to validate the business model for growth and sustainability. Growth should exceed the growth of the overall economy.

3. Training

Strong training and support should be a big part of the company. There should be detailed training programs and systems to support the owner. There may also be back-office support, software, computer systems, group coaching, classroom training, mentorships, etc.

4. Scalability

Verify the Business Model has the potential to be scalable. Confirm the ability of the company to grow in profitability so that the owner can remove themselves from day-to-day operations. After the business has achieved scale, the owner can use the business to support their lifestyle or choose to grow to the next level. The enterprise should allow the owner to work on their business and not in it. Reputable companies are available to answer questions and provide information about their business. You may also speak with existing franchisees to ask questions and get real-world experiences and challenges operating the business. 

5. Franchise Resales

Criteria for the best franchise have been described in this article, but the best franchise is a franchise that is already in operation and is being sold. You get to start with customers and income on the first day of ownership. You also avoid the huge franchise fees and start-up costs of starting a new franchise. The best part is you can usually buy a franchise resale for less than a new one. These opportunities can be profitable and outstanding investments, but picking the wrong one can be a financial disaster. Perform your diligence, so you don’t get burned.

Benefits of Buying a Franchise

Buying a franchise can be a safe way to get into business. Franchises have a proven business model with systems and processes to operate the company. While you pay royalties to the franchise, it may be worth the expense if you have limited experience or just want a higher degree of safety. Research has shown that buying franchises that are already up and going may be better than starting a new franchise. An established franchise will have customers and sales on day one. An existing franchise may also be cheaper to buy with some negotiation. Schedule a free consultation if you have any questions about buying a franchise.