Pete Jones had been with The One and Only Fitness for 20-plus years when the company eliminated his job and offered him three months of severance. He was upset — after all, he'd helped build the brand — but he took the package and decided to open his own club.
Pete considered creating his own brand, but he quickly realized he was not fully prepared to locate, negotiate, design, construct and open his own facility. Franchisors seemed to offer what he needed to open his first club. However, the number of franchise options was large, and the process to get information on each franchise and then examine it was time consuming.
So before Pete's severance ran out, he put together a list of 10 franchise musts to help him make his decision:
- Meet the executives
If you are considering a franchise in the fitness industry, meet the CEO, CFO and COO. The fitness industry doesn't have a franchise too big to make this impossible. If you are going to invest your money, time and future financial security in a franchise, you need to meet the executives so you know if you feel comfortable with them and can trust them. If you can't meet them or you don't trust them 100 percent, then don't buy.
- Do due diligence
Make sure you are issued the franchise disclosure document (FDD), which discloses information required by the federal and state government. Read it thoroughly. Ask the franchisor to explain anything you don't understand. Be concerned if a franchisor can't explain something or tells you that they just put that in there but they don't do it or enforce it.
- Find earnings claims
Not all franchisors put earnings claims in their FDD, and they don't have to. If a franchisor does not provide earnings claims, you must assemble a reasonable pro-forma yourself. A franchisor is only allowed to discuss earnings claims if they are in the FDD. If they do put earnings claims in their FDD, be sure that they are not just for corporate stores or joint-venture stores. If they are, take them with a grain of salt, as they don't disclose the true nature of what franchisees earn. Many franchisors also will give you contact information for other franchisees with whom you can speak, but they are typically their best operators or are cozy with the franchisor. Call them, but also call other franchisees, all of whom are required to be listed in the back of the FDD. Ask a lot of questions of many franchisees to give you a clear view of their performance and happiness with the franchisor.
- Know the fees, franchise term and renewal
All of a franchisor's fees need to be disclosed to you. Compare the overall costs with those of other franchises, then compare what you get for those fees. The franchise term determines how long you have the rights to operate the business — typically five, 10 or 20 years. After your term expires, you must pay a renewal fee and your royalties may change. Ask about this now. Once you buy into a franchise, you are entering a long-term relationship, so be sure you understand the future of that relationship as well as the present.
- Know your territory
Do you have a protected territory? If you don't, the franchisor can put a club right next to yours.
- Personal site visit
Will the franchisor visit the site you've selected for your club to inspect it firsthand? The franchisor should know which sites show signs of a successful location, but they cannot determine that without an in-person visit. No in-person visit means they are not engaged in the potential success of your location.
- Training programs and support
The franchisor's job is to support and service the franchisee. Get details of the support and service they offer: training, marketing, financing, back office resources, preferred vendors with preferred pricing, operating systems, real-estate assistance, etc.
- Litigation and closings
Legal action involving the franchisor has to be disclosed, so review that section of the FDD. A lot of litigation and a high number of club closings in the past year could be red flags.
- Be ready to work
Even the best franchise can provide lackluster results for a poor operator. Owning a franchise doesn't mean that you don't have to work hard; it just increases your odds of success.
- Believe in the brand and operating model
Don't buy into a franchise if you don't believe in it, and have a passion for how that business is run and what it represents. How well-known is the brand, and how does it resonate with consumers? Also, does the operating model provide everything that you would enjoy doing and providing to your customers?
Mark Mastrov, founder of 24 Hour Fitness, is now an investor in various business opportunities through his company, New Evolution Fitness Co. You can reach him at [email protected].