Pauline E. Ranger Why not buy a franchise if you want to run your own business? A franchise is an established business system that has been tested in the market and has proven systems that allow franchisees to operate and own that system.
Franchise systems are designed to be consistent. One of the main reasons why franchise systems are successful is that consumers and clients expect consistency.
The market
A market has been defined? Does the market have a growth or decline mode? Knowing who you are going to serve will help determine the viability of the franchise and its profitability.
Company History
You can get a good idea of a franchise’s culture by researching the officers, management, and those who will support your business. As franchising can be competitive, you must find a team with experience and stability.
You can start your research by requesting a Disclosure Document from all franchises. The FDD will be sent once the franchisee decides you are severe and qualified. The FDD’s articles 1-4 will provide information about the company, its history, its management, any litigations, and bankruptcy.
Financial statements
The financial statements of the franchise are contained in Article 21. Examine them, ask questions, and have a CPA review them.
Investment Level
Start by determining how much money you are comfortable investing. All franchise companies will look at your liquid capital (sometimes the capital required), assets-to-liabilities, and net worth. Refrain from coming in with a low capitalization. It would help if you were honest about your investment capacity.
Training and Support
Search for a comprehensive support and training program that does not use outdated procedures. Talk to current franchisees and learn from them. They are an invaluable resource that can help determine if the franchisor delivers on its promises.
Territory
The FDD covers this in Article 12. Look at the trends in your area based on your business and industry. Does that area show signs of growth or decline? Visit City Hall to speak with someone from planning or zoning. If you fail, it will be a loss for everyone.
Royalties
Be sure to read Article 6 of your FDD. Franchisees should make money from royalties and not “other” services. These other services are often provided to third parties and represent a cost passed along. Some franchisors reward their owners based on a sliding scale of royalty payments. The more revenue you make, the lower the royalty rate you pay. Check if the minimum royalties are enforced.
Restriction
You can find information about any restrictions in Article 8. To protect the brand and ensure consistency, franchisors impose restrictions. Be sure to know what you are allowed and not permitted to do as a franchisor.
Suitability
Franchise agreements can last anywhere between five and fifteen years. Once you sign your franchise agreement, it can be expensive to cancel. The concept of suitability is a personal assessment of your strengths and abilities and whether you’ll fit in with the culture and franchise you are partnering with. Do you plan to stay in this position for a very long time?
Exit strategy
Plan two steps. What happens if you fall ill or have a crisis in your personal life? Plan your exit strategy, whether it’s selling or transferring. Ask about both costs and keep in mind that each has prices.
Questions about franchise evaluation
We have compiled the most critical questions on this topic.
How do you evaluate franchise opportunities
The market
Company History
Financial statements
Investment Level
Training and Support
Territory
Royalties
Restriction
Suitability
Exit strategy
Why would you buy a franchise business
A franchise is an established business system that has been tested on the market and has plans that enable its franchisees to own and operate this proven system.
