8 Things to Ask Before Investing in a Pet Franchise
You know that the pet industry generates $86 billion, that you’d love nothing more than to work with animals, and that you want to be your own boss. Owning a pet franchise will enable you to meld your love of animals with your entrepreneurial spirit, but before you invest in one, be sure to ask the following questions.
What kind of support will you receive? Although as a pet franchise owner you will be provided with a proven successful business model, your ability to make it profitable for you will depend on many factors including the pet franchise model you select, how much work you put into your business as well as the type of support your franchisor provides. Ideally your franchisor will help you implement personalized business and marketing strategies, be available to answer any questions you may have, and provide you with initial and ongoing training, helpful technology, and sales support.
What is the culture like? Every pet franchise has its own culture and you’ll want to be comfortable with it. Speaking with the franchisor and existing franchisees within a franchise system combined with reviewing the franchisor’s franchisee satisfaction survey results if they have them, will provide you many insights into a franchise’s culture.
Are the franchisees satisfied? The overall attitude and satisfaction of franchisees of any pet franchise you are considering is an important factor. Be sure to speak with at least half a dozen franchisees and to ask the franchisor if they can provide you with an independent franchisee satisfaction report. Every franchise company will have some level of discontent, but speaking with many different franchisees will show if it is something the majority of franchisees are experiencing, which would be a big red flag, or if just a handful are. Depending on how long the pet franchise concept you are considering has been around it’s a good idea to speak with franchisees who have owned their franchise for different lengths of time such as ones who have owned theirs for less than two years, two to five years, for five to 10 years, and more than 10 years.
What is the initial investment range? The initial investment range of a pet franchise business is the estimated costs you will incur starting it. It typically includes the franchise fee, which is a one-time licensing fee paid for the initial term of the franchise agreement, training costs, equipment, marketing materials, and build-out costs for businesses with a physical location. The initial investment is always given as a range since there are many variables that can affect it including local market conditions, the size of the location, the size of the territory, etc. These initial costs are outlined in Item 7 of the Franchise Disclosure Document (FDD), which any franchise you are interested in will provide you with if they feel you are a good fit. The FDD outlines what the franchisor will do for you, what they will expect of you, financial information, information about franchise performance, contact information for current franchisees, and much more. Every pet franchise will also require additional capital investment over time. These costs depend on the type of business you are investing in.
What is the required net worth? Many pet franchise companies have minimum net worth requirements for their franchisee candidates that can be significantly higher than the initial investment itself. Higher net worth requirements are typically tied to your ability to be approved for financing to cover the initial investment, working capital, and other additional capital should you need it.
Has the franchise been involved in litigation? Item 3 of the FDD outlines the details of any current litigation the franchise company is facing or bringing against a franchisee or other parties. If the franchisor has an extensive history of litigation involving franchisees this is a red flag.
How profitable could you be? Pet franchise companies, like all franchise companies, are not required by law to disclose the financial performance of their franchise locations, but if they do provide unit-level performance data it will be listed in Item 19 of their FDD. Keep in mind that most numbers provided by franchise companies are typically gross revenue numbers, which don’t really provide you with any insight into the actual potential profitability of the business. Asking franchisees within pet franchise systems you are interested in about their typical expenses will help you estimate the potential profitability of the pet franchise you are considering. The best franchise companies disclose both gross and net numbers in their FDD, with averages for their entire system.
What is the franchise’s history of terminations and transfers? FDDs list changes in units over the past three years. This includes new units opened and those that didn’t renew their franchise agreement, ceased operating for other business reasons, franchise units that were terminated by the franchisor (meaning that the franchise agreement was legally terminated and the franchisee is no longer part of the system), as well as units that were transferred to other franchisees. While reputable franchisors occasionally terminate the franchise agreement of an individual who is significantly under performing and/or not in compliance with the agreement, a high rate of terminations or transfers within a certain time frame should be considered as a red flag.
You’ll be able to get the answers to the questions above by asking any pet franchisors you are interested in to fill in the blanks, carefully reviewing their FDDs, and speaking with their franchisees. Although conducting this level of due diligence may seem daunting, it is essential that you do so in order to increase your chances of investing in a pet franchise that will meet your objectives.
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