The ad headlines from various franchisors scream with hype. "Money making franchise opportunity of the century." "A 150 billion dollar business." "Big money in your spare time." Every franchise company tries to gain your attention in the competitive 900 billion dollar U.S. franchise industry.
However, not all franchises are alike. How do you know if you're getting a good deal? Put aside your emotions and dreams for a moment and take a hard look at the franchise opportunity. Consider the following evaluation checkpoints:
Market Trends: A franchise opportunity selling team will promote the size of the industry and potential market. A billion dollar industry does not equate to an opportunity. Contact industry associations to determine the growth stage of the industry and if it has experienced positive growth over the last few years.
Executive Background: Buying a franchise opportunity requires a look into who is running the company. The success of your business will need the expertise and skills of the franchise executives including: shareholders, officers, and directors. Find out their background and core skills as applied to the franchise. Do they have the skill set and key staff to run a profitable franchise operation?
Territory Coverage: Rapid growth of a franchise opportunity may lead to over saturation in a market. Having a protected territory at least ensures your competitors remain outside the franchise company. Check your contract for first refusal rights if a franchise becomes available in your local market.
Company Support: Your success as a franchisee will depend upon access to business knowledge for your franchise. A good franchise opportunity will provide a full level of support to allow owners to succeed. Support should include:
- employee training
- access to capital
- how to run the daily operations
- field support staff with frequent availability
Brand Name: Having a brand name can have a significant impact on your business profitability and acceptance in the marketplace. Tapping into a larger base of market recognition and national advertising will drive sales and traffic. Brand names do however, come with a much higher price tag. An unknown franchise opportunity may be more affordable and more lucrative if the business market being served is untapped.
Professional Advice: Would you buy a home without the use of the services of a home inspector, real estate agent, and lawyer? Purchasing a franchise opportunity will be one of your most significant investments in your lifetime. Putting your life savings on the line requires a professional team consisting of: an accountant, lawyer, and a franchise consultant.
Exit Strategy: Determine the terms and costs to end your franchise contract. Your contract may not run indefinitely. Explore the the franchise company's expectations of renewing the franchise contract in the future.
Franchise Business Plan: Although, franchise businesses have a higher success rate than non-franchise start-ups, a business plan is even more critical. A new start-up will often end up in a business not expected, whereas a franchise is already a preset opportunity. A business plan will be your road map and help you access the viability of the franchise concept in your market.
Evaluating a franchise opportunity requires extensive investigation and work. Do not take short cuts and miss the details you may regret later. It is your money, take the time to protect it and invest it wisely.