Buying a franchise may look like a simple path to owning your own business. But for every entrepreneur who thrives, there are others who run out of money, realize too late the business was never right for them, or find themselves running an operation they barely understand. The difference starts before you ever sign the franchise agreement.
Joining us on this episode of Business Trends Today is Nick Neonakis, CEO of The Franchise Consulting Company, founder of the Great American Franchise Expo, and author of The Franchise MBA. ASBN viewers can text the word “franchise” to 26786 to receive a free copy of his book.
From the boardroom to the franchise world
Neonakis got into franchising 24 years ago, fresh out of business school, when he met the founders of FirstService, one of the largest publicly traded property services franchisors in the world. Its portfolio included brands like Colliers Commercial Realty, California Closets, Floor Coverings International, and Paul Davis Restoration. He spent a decade there before launching The Franchise Consulting Company, which now operates 180 offices across the U.S. and in 16 countries.
"The beauty of franchising, the reason that I love it so much, is that it helps Americans, and people all over the world, go and live the life that they've always wanted to."
His advice to anyone considering a franchise is to treat the investigation like a job. The decisions made before signing, he says, will determine everything that comes after.
The four-step framework
Neonakis built his consulting practice around a four-step framework he outlines in The Franchise MBA. The first step is knowing yourself. Before looking at a single brand, he says buyers need a clear picture of what they want the business to deliver, financially and personally.
The second step is building a list of franchises where existing owners are already hitting those outcomes. The third is narrowing that list through deep investigation until one or two strong candidates emerge. The fourth, and most important step, according to Neonakis, is shadowing an owner before you buy.
“It’s such an important step that if a company won’t let you do that, I would be very hesitant to buy it,” he said.
The process should be thorough, not fast. Legal and financial vetting come last, but Neonakis is clear that they are not optional. He recommends working with a franchise-specific attorney rather than a general practice lawyer, and points to the International Franchise Association website as a resource for finding nationally recognized franchise attorneys.
Know yourself first
Of all four steps, Neonakis says knowing yourself is the one most buyers rush past. It is also the one most likely to determine whether the business succeeds. The question is not what industry you know. It is whether you can do what the business actually requires every day.
Many franchise businesses run on the owner’s ability to sell. New franchise owners who have never worked in sales often underestimate how central that is, and find reasons to avoid it once they are in.
“If you go and work in it for a couple of days and you are just cold sweats with the activities that actually drive the revenue, well, guess what, nothing is going to change after you sign the check,” Neonakis said.
Industry expertise matters less than most buyers think. A friend of his owns multiple discount hair salons and does not know how to cut hair. What that owner does know is how to hire, manage, and scale a business. At a certain level, Neonakis says, all business is business. The key is understanding where you are on the spectrum between hands-on operator and hands-off investor, and choosing a franchise that fits accordingly.
Do your own investigation
Once a buyer has identified a strong candidate, Neonakis says the investigation should be driven entirely by the buyer, not the franchisor. Salespeople are paid to sell, and the picture they paint will reflect that. It is the buyer’s job to push past it.
That means talking to franchisees who failed, not just those who succeeded. The federal disclosure document lists former franchisees, including those who closed. Neonakis recommends calling them directly to find out what went right and what ultimately went wrong. He also encourages buyers to mystery shop both the franchise and its competitors, and to talk to potential customers before signing anything.
“We are not looking to have information spoon-fed to us,” he said.
The goal, he says, is to think like a doctor. Gather all the data, weigh the good against the bad, and make a decision based on evidence rather than enthusiasm. If the investigation turns up more questions than answers, that is useful information too.
Don’t expect to get paid right away
The financial realities of franchise ownership catch many buyers off guard. The biggest mistake, Neonakis says, is underestimating how long it takes to draw a meaningful salary. Buyers who plan only for startup costs and operating expenses often forget to account for their own living expenses during the ramp-up period.
He recommends planning for 18 to 24 months before expecting to pull consistent money out of the business. If a buyer needs $10,000 a month to cover personal expenses, that means having $180,000 set aside before the doors open, in addition to everything else.
“If you are not making a reasonable return within 18 months, and you’re not seeing lots of franchisees that are doing that, then that’s probably a warning sign,” Neonakis said.
Funding is rarely the obstacle buyers think it is. SBA loans, franchise-specific lenders, and retirement funds are all viable options. What matters most, he says, is the borrower’s credit score, not the brand. Buyers with strong credit can access capital across a wide range of franchise types, from a $10,000 service van to a multi-unit retail operation.
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