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Nov42021
INDUSTRY

How to Evaluate Franchise Opportunities

When it comes to franchise business opportunities, there is no one size fits all. There are many different types of franchise businesses. Finding the right one for you takes time and careful consideration. You may be set on a certain industry or franchisor early on, but there are other factors to consider before you leap into the onboarding process and open a franchise business.

There is much more to a franchise business opportunity than what you see on the franchisor’s website or even in the materials they provide for your review. It’s imperative to dig deeper for a more complete picture of the opportunity to determine if it’s a good fit for you and your business goals. Knowing where to look for that information is key. Read on for what you should consider when evaluating a franchise business opportunity. 

Assess the Potential

You may already be passionate about the industry you’ve chosen, but before you start researching specific franchise business opportunities, it’s a good idea to learn all you can about the market potential. Review industry publications. Look at current trends and what the biggest and most successful companies in the industry are doing. Search for ways to connect with successful figures in the industry via social media or at networking events to learn more about the hallmarks of success and where the industry is headed. 

Assessing the viability of the product or service will help you make an informed decision when selecting a franchise partner. You will learn how this franchise business opportunity measures up against others, and whether it’s a good choice for you.  

Research Company History 

All franchisors must file a Franchise Disclosure Document (FDD) that includes complete business details, making it the perfect place to take a deep dive into the details of the company’s history. In this file, franchisors are legally obligated to disclose information such as a list of the management team, a breakdown of costs, franchisor obligations, franchisee obligations, litigation history and bankruptcy information. You’ll only receive this document when you are in the discovery phase, after the franchisor has determined you are qualified and serious about opening a franchise business.  It’s wise to seek assistance from an accountant or lawyer to properly understand the documents and the data provided as some things may be less obvious than others. Get the clearest financial and legal profile possible as you get closer to signing on the dotted line. 

Also, ask to speak to other franchisees to get an inside take on what it’s like to be in the franchise network. A good franchisor won’t hesitate to connect you with other owners in the system. If they do, it’s worth asking why and rethinking whether you should continue down the path of opening a franchise business in that network. 

Understand Franchise Support

Many potential business owners choose to open a franchise business rather than a sole proprietorship because of the backing they expect to receive from the franchisor. Support can vary from franchise to franchise, and it’s important to know exactly what you will receive during your partnership. While many franchisors offer training and mentorship, comprehensiveness varies.

Make sure you understand and are comfortable with the level of involvement from your franchisor as well. Some may have more input on their franchisees’ day-to-day than others, resulting in reduced autonomy. The level of restrictions and franchise guidelines designed to provide consistency across the network are also different for every franchisor. You must be willing to adhere to these standards to protect brand identity. 

Identify Expenses 

There are many costs to consider when opening a franchise business. In addition to initial setup and franchise fees there may be several fees for things like training and grand opening assistance, or ongoing fees for marketing, software usage, licensing and royalties. Find out if any minimum or maximum amounts apply. Be sure to factor all expenses into your budget and crunch the numbers carefully. Most franchisors still expect royalty payments even if your new business is struggling so it’s important to ensure you will have enough money to afford the operation until you start turning a profit.

An adequate budget is important but protecting yourself during the launch process is crucial. Before putting any money down, make sure the plan to open your business is solid on both sides. If the deal falls through before completion, you could lose any money invested up front.

Due Diligence is Crucial 

A successful franchise is based on more than brand equity. Do your homework and fully investigate any franchise business opportunity you’re considering before making any commitments. Assess the market potential and competition, explore the franchisor’s history, the level of support provided and ensure you can not only afford their partnership but flourish. Tap into as many resources as possible and do your due diligence to make the best decision for your business and your future.