There are many well-known franchise opportunities available in almost every industry you can think of. Some are well established with proven systems and support structures in place, while others are relatively new. Choosing the franchise that suits you will reduce risk and raise the levels of success.
While specialist advisors are a necessity to assist you throughout your business venture, the following steps will help you to evaluate any franchise opportunity you are considering.
1. KNOW YOURSELF
The first topic of research will be you. Consider your strengths and weaknesses. What is your level of knowledge, where might you need development and are your skills transferable? Will you be able to manage the high level of personal energy required to get yourself started? Are you a team player, or do you prefer to work alone? Will you require staff? Only after you have analyzed the depth of commitment required to start a new business venture will you be in a position to make a specific choice.
2. KNOW YOUR FINANCIAL COMMITMENTS
The costs of a franchise can vary considerably. While smaller investments can be affordable through personal assets, most potential franchise owners will need to consider additional borrowing. The increase in small business ventures have compelled many banks to have business start up kits, which include information on the requirements of starting a business, self evaluation reports and financial planning forms. No matter how much security you can offer, banks need to be convinced that loans can be serviced. What the proposed business can afford is more important than what you have.
3. KNOW WHAT FRANCHISING IS
Find out all you can about franchising. In particular focus on the unique relationship that exists between franchisees and franchisors. Look for a Franchise Association closest to you to obtain guidance from. Once again the banks can provide a wealth of information in this regard; it is now within their interests to build relationships in an extremely competitive financial environment by providing separate departments that serve the franchise industry. Search the internet, but be aware that different countries will have different compliance issues. Even if you have a preference this early in the game, research is still a vital process that needs to be completed. There is also the chance that research will open up alternatives you may not have previously considered.
4. KNOW THE INDUSTRY
You have already analyzed your skills and knowledge; now look at the different types of businesses that you feel are potentially suitable. Identify the different companies that are offering opportunities in the area. Consider the requirements of the proposed industry and see if it matches your skills and aspirations. It is not necessary for you to have worked in this industry before, but you need to feel comfortable and happy working in this environment. How durable is the potential market? Who are your customers? Who are your competitors? Is it an international franchise or newly introduced to your area? Is the market large enough to sustain a long-term business? Get to know the franchisor. You need to be happy with the industry you will be working in and the people you will be working with.
5. EVALUTE THE FRANCHISE
Once it is established that you are interested in a particular franchise, information will be sent to you. Read all the information you receive thoroughly noting any first impressions and any initial questions you may have. Discuss and clarify any concerns you have with the franchisor. The size of the franchise should not restrict the availability of information you need regarding the company’s history and profile, market conditions, the franchisees role and the costs involved. Examine company records in detail, check credit references. Closely examine the outline of the franchise particularly the manner in which the franchise is sold and operated. Look at all the details of any commissions’ payable on the sale of the franchise and ask to see references of present franchises and company outlets. Make sure you understand the components that make up the franchise fees.
6. QUESTIONS FOR THE FRANCHISOR
The greatest source of information you will obtain regarding the franchise system is from the franchisor. Prepare for every meeting with your list of items that need to be clarified. Ask all the questions you need in relation to the franchise, products and services. Do not be afraid to ask questions relating to the profitable viability of the franchise. You need to find out the success of the franchise, talk to other franchisees as well. What training and support exists? Is the franchise bound by any code of practice?
7. TALK TO THE FRANCHISEES
The surest method of evaluating any franchise will be to talk to a number of franchisees in existing businesses. In this way, you will get a realistic assessment. What value have they got from their business, both financial and personal? Make sure you chose the franchisees to speak with. You may not get a balanced picture if you speak only to ‘approved’ franchisees. The perspective of international outlets can also be of use, but, remember to consider different conditions, population structures and competition.
8. SPECIALISED FINANCIAL ADVICE
There could be some reluctance on the part of the franchisor to reveal financial projections in case they are viewed as guaranteed. However, what reports are available should provide relevant figures based on the existing climate. Whether the projections you receive are forecasted or guaranteed, an accountant with franchise experience should be able to give you qualified advice. Encourage your accountant to work with the franchisor. The franchisor will be able to offer cash flow, borrowing and overdraft guidelines. Take all the advice you can get. As a new business owner you do not want to start your business under capitalized.
9. SPECIALISED LEGAL ADVICE
It is important to fully understand the terms and conditions of the franchise agreement. Understanding your obligations and the franchisors responsibilities need to be clear from the start. Use a lawyer that specializes in franchise agreements to define legal terms you have difficulty with to save you time and money
10. CHECK WHAT YOU ARE PAYING FOR
Before you sign on the dotted line, make sure you know what the up-front franchise fee includes and what refunds you may expect if you change your mind or fail the training. What are the performance criteria? You must also have a clear understanding of any ongoing costs. You need to know what fees are payable, how they are calculated and what they are for.
To maximize your chances of success it is imperative you do not rush your decision. Check out all aspects before you commit yourself. Be 100% certain that the franchise is right for you before you part with your money.