1) Wildly Successful Foundation
The founding location should be crushing it. The longer they’ve been operating, the better.
They have considered expanding via more corporate locations but choose franchising as the alternative.
The best franchisors test everything first – new products, services, pricing models, marketing campaigns, and software – before rolling it out to franchisees.
Brands that launch as a franchise from day 1, with zero corporate locations, are extremely risky. These are often created by “franchise developers” who know how to sell franchises but have never actually operated the business themselves.
The strongest foundations are built on proven successes, not PowerPoint presentations.
2) Strong Cash-on-Cash Returns
Buying a franchise means buying a business, and it needs to have strong economics.
A great metric to estimate is “cash-on-cash,” which looks at how much net cash you’ve generated vs. cash invested into launching it.
Net cash = cash flow after debt service & all expenses
Cash invested = down payment (if you got a loan) plus additional working capital
Franchises come in all different shapes & sizes.
A retail concept could be $500k, funded all in cash, that generates $100k in cash flow year 1, giving you 20% cash-on-cash return ($100k / $500k)
A mobile service franchise could be $100k, using an SBA loan requiring a $30k down payment that generates $60k of cash flow in year 1, giving you a 200% “cash on cash” return ($60k / $30k)
This is one of the hardest steps since Franchisors can’t tell you how much money you will make. Interview as many franchisees as possible to build out a pro forma to estimate best, average, and worst-case cash flow & start-up cost projections.
3) Profitability Franchisees
A great brand has profitable franchises that are fighting with each other to buy more locations. When you see existing owners racing to open their 2nd, 3rd, or 10th location – that’s a good sign.
These people know the real numbers and still want more.
The best franchisors are obsessed with franchisee profitability. Here’s what that looks like:
They use their buying power to drive down franchisees’ cost-of-goods instead of pocketing supplier rebates for themselves
They benchmark top performers to show other franchisees what’s possible
Before rolling out new programs or products, they ask “Will this make our franchisees more money?” and share best practices across the system.
Watch out for franchisors who seem more focused on selling new units than supporting existing ones.
If current franchisees aren’t making money, it doesn’t matter how fancy the growth plans look.
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4) Something Special
Look for brands with a competitive edge, not just another “me too” business. The best ones have moats that competitors can’t easily copy.
Brand recognition is very powerful, but it’s a chicken-and-egg problem. Often the best markets are snatched up by the time everyone knows the brand.
It could be proprietary tech streamlining operations for franchisees, patented processes, or unique supplier relationships that others can’t access.
Or it could be revolutionizing a traditional industry – Chick-fil-A transforming fast food with hospitality, or Planet Fitness disrupting gyms by targeting the casual exerciser.
Finally is the “first-mover advantage” in a huge industry that hasn’t been widely franchised yet. The competition is highly fragmented, with independent operators and no nationwide competitors.
Many plain vanilla brands offer nothing special – just another sandwich shop, gym, or service business doing the same thing as everyone else.
Ask yourself, “What makes this brand truly different?”
If you can’t explain it in one sentence, or if the answer is just “quality” or “service,” keep looking. The special sauce needs to be real and defensible.
5) Timeless Concept
Trendy concepts can make a lot of money in a short amount of time, but that’s the trap.
Sure, you might crush it for 2-3 years while you’re the hot new thing in town. Your Instagram is popping, and you’re feeling like a genius.
Then go down in flames: Froyo shops were printing money in 2012-2015, now they’re mostly gone.
Orange Theory was the must-have fitness franchise until Peloton and COVID changed the game.
The market is ruthless with trends. When the trend dies, it dies fast – leaving you with expensive buildouts, long-term leases, and plummeting sales.
You want something that has been around forever and won’t be getting disrupted by AI or Amazon.
I like boring businesses that solve real problems people will always have. These aren’t sexy, but they’re steady, and they’ve survived multiple recessions, tech revolutions, and changing consumer habits.
6) Support & Training
Franchisors should be training & support machines. They should be experts in turning decades of knowledge into days of training.
This allows people with no experience in the industry to quickly get up to speed learning 80% of what’s needed.
The final 20% is provided through consistent support. 1-1 coaches, a community of franchisees, and in-person meetings to keep learning.
The Other Half of the Equation
There’s no magic bullet or perfect brands.
Just because I operate 30+ auto repair franchises doing over $45M in revenue doesn’t mean that’s a good brand for you.
Running a business is personal. You must find one that matches your unique goals, skills, location, and fit your budget.
I just released a YouTube video going over how to choose a great franchise
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Cheers!
