This is the final post in a series of posts on the Secret Sauce of Franchise Investing based upon an excellent article I read some time ago on what private equity likes to see before investing in a franchise. In this post I am highlighting the eighth ingredient which is whether the franchise has a runway for future growth.
Franchise investors will want to see whether there are enough open territories for expansion. Often, you will see a franchise that is concentrated in a certain region of the country. This may mean there is plenty of opportunity for the franchise to expand to different regions of the country. It is important though to identify the stage in which the franchise is in their expansion. Sometimes a concept only has appeal in that territory. For example, maybe a restaurant has appeal in the South but not necessarily in the Midwest. If you find a concept that has more universal appeal across geographies (discussed in a prior post in the series), then you can potentially hit a home run.
I have found it best not to chase business opportunities, whether franchise or otherwise. Don’t get into a hurry and make sure you are getting a reasonable deal. There are lots of times I have seen franchise concepts become hot and then the price goes through the roof for a territory. Often, the unit economics (discussed in a prior post in the series) no longer hold water because the investment buy-in has become too expensive for profitability.
I hope you find the series of posts on franchise investing informative. Please be sure to let me know if you have any questions if you intend to start or invest in a franchise.