Finding the right franchise can be a tough task especially for a newcomer to the industry. Several factors have to be carefully considered before making this significant long term investment. Here are the ten most important aspects to be looked into before becoming a franchisee:
How do you know when you have found the right franchise for you?
1. Growth potential in the market
The concept should have a sustainable growth potential in the market at a local, national and international level. The analysis or market research for this should be provided by the franchisor. However, it is equally important to conduct a separate research about the market growth and potential future competition, especially at the local level, by gathering information from the web, family and friends. Ensure that the concept is suited to the locale targeted for franchise business, even if it has been successful in some other part of the country or state.
2. Controlled growth of the franchise network
Analyse the nature of growth sustained in previous years. An incremental growth in the number of franchise units is a good indicator of future profitable growth. Also, the more the number of units, the greater the brand awareness among the customers. Be cautious if the past records show rapid or exponential growth. Dig deeper into the franchisor’s recruiting or selling approach and ability to support a rapidly growing network of fledgling businesses.
3. Ongoing franchisor support
Ensure that the franchisor provides comprehensive training, operations and business building support to help get the franchise established and to keep it sustainable and profitable. The franchisor should also be actively involved in keeping the business at the cutting edge of product development, management approach, and compliance.
4. Marketing and advertising support
The marketing needs have to be understood in detail. Some of the aspects to be considered are:
What are the type of marketing, sales building, advertising programmes and resources provided by the franchisor?
Is the franchisor responsible for ensuring that the marketing and promotional campaigns are more effective than those of the competitors?
Does the franchisor leverage the power of online marketing and social media?
Would there be a monthly deduction towards a separate marketing fund managed by the franchisor? How is the fund managed? What is ROI for the fund?
5. Satisfied and enthused franchisees
Talking to the past and current franchisees will help in understanding the challenges involved in the franchise business and issues to be tackled. It is important to take the responses with a pinch of salt as not all franchisee businesses can be expected to be equally successful. But, if the predominant opinion is negative, then it might be better to not enter the business at all.
6. Potential for sustainable profit
Try to obtain the average earnings information in a Financial Information Disclosure Document from the franchisor. It is also a good idea to talk to the existing franchisees about their financial performance. Review the figures with an accountant and evaluate the potential performance that can be achieved in the locality chosen for business.
7. A reputable management team
Be familiar with the management team of the franchisor and try to establish a rapport with them, as this working relationship will prove to be critical after starting the franchise. Look at the company’s past, its founders or master franchisees and their business acumen. Find out how long the company has been franchising.
8. The franchisor’s financial standing
While reviewing the franchisor’s historical financial performance figures, ensure that the past and current accounting practices are sound and financially robust so as to support the growth of their business and ultimately the growth of the franchisees under them.
9. Franchisor behaviour – Integrity, transparency & honesty
The franchisor’s behaviour while responding to questions about profitability, sustainability and other important matters is a good indication of the support that can be expected at a later stage while running the business. Make sure the requests for information are responded to in a clear and speedy manner, with valid responses. Any grey areas, omissions, suspicious activity or lack of transparency is a red flag.
10. A substantial system
A strong and robust system will provide the franchisees with all of the operations systems, software, training programmes, equipment (in some cases) and monitoring tools to establish a sound business. Ensure all of this is in place. Make sure that a strong and fair franchise agreement is put together, so that it not only protects the brand and franchisor, but also providesthe business support, compliance protection, brand and product development that will help grow a sustainable business. It is important to review the agreement with a solicitor with franchise experience.
