Franchisors spend countless hours determining whether or not a prospective franchisee is a good fit for their brand. They look at everything from net worth and business experience to personalities and passions in order to determine whether bringing on a new owner into their established network of franchisees will be good for business. But that high level of consideration goes both ways—it’s just as important for future business owners to thoroughly evaluate their potential franchisor.
One of the best ways for future franchisees to dig into brands’ background is through its Item 20, which can be found in every franchise disclosure document. That’s where businesses explain how they operate, how they maintain relationships with their owners and how aggressive and responsible they are. One of the strongest Item 20s in franchising belongs to Sport Clips.
“We look at our Item 20 as a place where potential franchise owners can get to know us as a brand,” said Dave Wells, Sport Clips’ director of franchising. “We’ve proven that our model works over the past two decades, so we want our franchisees to know exactly what they’re signing up for when they work with us. That’s a huge part of why our system has been so successful.”
Sport Clips is consistently recognized for being one of the top fastest growing franchises in the country. That consistency is visible in its Item 20—the brand’s experienced tremendous net store growth over the last three years, with more than 150 new openings every year. That expansion is driven by the availability of quality real estate since Sports Clips only opens up in locations where it knows it will thrive.
The brand has a remarkable track record of keeping stores open, boasting a continuity rate of 99.6 percent. That means of 1,428 stores that serviced customers under the Sport Clips brand at some point between 2011 and 2015, 1,423 remain open today.
“It’s essential for franchisees to know how consistent a brand is when it comes to store openings,” said Pete Lindsey, vice president of franchising for Sport Clips. “Too few store openings can indicate that there’s a lack of interest or a lack of existing franchisees willing to expand. Too many openings, on the other hand, can mean that brands are compromising their standards when it comes to site and franchisee selection.”
Item 20 also gives prospective franchisees insight into the number of store transfers taking place within a brand’s system. Last year, Sport Clips transferred 83 stores, with 80 going to existing franchisees. The average age of the stores being transferred was five years old. Item 20 will also show you how aggressive the franchisor is about terminating licenses. If you see very high terminations, you need to really dig into this and find out why this is happening. This will help you better understand the franchisor’s approach.
“Healthy franchise systems typically see transfers happening any time after two years. That shows owners are selling their businesses because they’ve seen a return on their investment,” said Wells. “It’s also critical to note whether or not franchises are being transferred to existing owners. At Sport Clips, the majority of our stores are being passed to people within our brand, meaning they’ve seen success and are eager to keep growing with us.”
When it comes to its Item 20, Sport Clips is focused on giving franchisees the information they need to know in order to feel confident in investing in the brand.
“Item 20 is one of the most ignored areas of franchise disclosure documents, but it’s also the most valuable,” said Wells. “It’s essential for our franchisees to dig into it and ask questions—that’s when you know they’re just as committed to seeing their Sport Clips’ business succeed as we are.”
For more information on franchising with Sport Clips, click here.