Get Your Automotive Franchise Business From 0 to 60 Faster by Selecting the Right One

By: Emma Pearson
Published: March 12th, 2018

There are more types of automotive franchises than there are types of cars. Regardless of the economy, many will always be in demand because people need their cars to be functioning well for a variety of reasons and public transportation in most areas of the United States is very limited.

Although the sheer number of automotive franchises may initially seem overwhelming, considering the points below will help you narrow down your choices to those that are likely to work best for you.

Types of Automotive Franchises

In Jump-Start a New Career with an Automotive Franchise, we addressed the types of automotive franchises that are available to you to choose from. It's important to understand that they come in one of two types of models, a business format franchise or a product distribution franchise.

• Business Format Franchises
  Business format franchises provide you with an established business, including its name and trademark and, most importantly, a complete system to run it. The system will help you to effectively conduct operations, market your business, and more. You'll pay an initial fee and ongoing royalties in order to enjoy these benefits.
• Product Distribution Franchises
  In a product distribution franchise, the franchisor licenses their logo and trademark to you, but does not provide you with a complete system to run your business successfully. In return for the logo and trademark, you'll pay fees or have to buy a minimum amount of products.
  A product distribution franchise resembles a traditional supplier-dealer relationship, with two key differences. First, you can sell/handle the franchisors products on an exclusive or semi-exclusive basis. Second, you'll enjoy more services from the franchisor than you would from a supplier in a typical supplier-dealer relationship.

Which Automotive Franchise Is Likely to Meet Your Needs and Objectives?

Once you've narrowed down the type of automotive franchise category you are interested in owning, it's time to ask yourself some questions to see which ones are most likely to meet your needs and objectives:

• How much money can you invest? You must have a realistic idea of what franchise opportunities are feasible based on your budget. It's important to keep in mind that you will unlikely be profitable enough to take a salary shortly after opening so you'll need to have enough money in the bank to live off of until you can, usually a year's worth of living expenses.
• What do you want out of your automotive franchise? Will it need to be your primary source of income? How much money do you want to earn from it? Do you eventually want to own more than one franchise? Do you immediately or eventually want more of a management role in the business? What days do you want to work?
• What are you good at? Examine your skill sets and determine what you are good at or comfortable with. While you may have the relevant skills, you don't have to be an expert in the business. A business format franchise may well empower you to go into an area you are unfamiliar with because of the training and other support it provides.
• What is your exit strategy? How long do you want to run the business before you sell it? Do you want to pass it on to a family member? Be sure to find out what restrictions franchisors have regarding selling your franchise.

Doing Due Diligence Before Investing in an Automotive Franchise

Before investing in an automotive franchise it's important that you carefully review the Franchise Disclosure Document (FDD), which is typically about 100 or 150 pages long. It will provide you with answers to many of the questions above, which in turn will help you decide if you should make an investment or not.

The FDD will be provided to you by automotive franchises you are seriously considering investing in, typically after you have spoken to their sales team and it's mutually decided you may make for a great franchisee in their system. The FDD features legal disclosures that relate to a variety of business and legal issues including information about the franchisor‚ estimated start-up costs‚ fees you will be required to pay the franchisor‚ a list of franchisees, and tables identifying the number of franchised units that have been recently established as well as the number of those that may have closed.

Let's go back to the list of franchisees (Item 20) within the FDD who you can contact for a moment. Existing franchisees within any franchise system you are considering investing in can provide you with an incredible amount of insight into the system. It's important that you contact at least half a dozen and ask them questions about support they receive from the franchisor‚ the profitability of their business‚ what they think about the franchisor's marketing, what their approximate start-up costs were, and their overall satisfaction with their business.

Leveraging the Expertise of Accountants and Lawyers

In addition to reading the franchisor's FDD and speaking with current and former franchisees, it's a good idea to engage the services of an accountant and lawyer who specialize in franchising.

An accountant can help you understand the franchisor's financial statements, develop a business plan, assess any earnings projections and the assumptions they're based on, and to select a franchise system that meets your budget and is likely to meet your financial objectives.

A lawyer can help you understand your obligations under the FDD. He will also look for any red flags like franchise locations in direct competition with each other, fees he doesn't think are appropriate, high incidences of litigation, or high numbers of recent closures.

While there are many examples of successful automotive franchises, buying a franchise is no guarantee of success. Taking the steps above prior to investing in an automotive franchise and being committed to working hard in a strategic manner once you do invest in one, however, will greatly increase your chances of success.

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