A franchise is a great opportunity for budding entrepreneurs looking for a place to share their talents. The franchiser has done the groundwork and established the brand, so you can pick up where they left off and use existing tools and frameworks to start your new business. But, even with the groundwork that is done, success is not necessarily guaranteed.
It’s critical to select the franchise that is right for you, and has the best chance of success. When you’re hunting a franchise offer, look for answers to these five essential questions:
What is the franchise’s company history?
The franchising company’s history is key. Go beyond a basic Google search, and research details in-depth to get a clear picture of the company.
Build a background profile including verification of the franchisor’s business license and registration, and the size of the company (including international bases). Information on their financial status, both current and previous, is essential; you can get this from their annual reports. You also should hunt down existing franchise details to check their fiscal health. Make sure you search for complaints against the company (head office and franchises), as well as any lawsuits or bankruptcies.
If possible, visit the main headquarters of the franchise in person. Find out how many franchising operations they currently have. Ask for the phone number of a franchisee, and call them to get a better idea of the advantages and disadvantages they have experienced.
What are the upfront and monthly costs for the franchise?
Learn what upfront costs are required for your franchise, and carefully understand what is included in your fee. For example, some franchisors provide operations manuals, discounts on staff uniforms, or marketing bundles, while others only allow you to use the brand name.
Most franchisors also charge monthly fees, so you must find out what your recurring fixed costs may be, as well as what they will include. Remember to include their percentage of your monthly profit in your calculations, as well.
How established is the franchisor?
Once you’ve researched the company credentials, you can move on to what is perhaps the most difficult decision: balancing the franchisor’s history against getting in early.
A small, new franchising opportunity offers the possibility of wider horizons. By getting in early, you can be one of the first to introduce the brand to your area and capture a bigger market. Being the first often means bigger profits, a more stable future customer base, less competition in the short term, and exciting future expansion possibilities. On the other hand, being first also means that there’s more risk: a less-established brand or a new product or service, may equate to a higher chance of failure.
Opting for a big, established brand franchise is the opposite. You may face tougher competition in an established market, there is less room to expand in the future, and the profits are likely to be limited, especially in the short term. On the plus side, you’ll have the backing of a powerful, well-established brand name with far more resources, marketing reach, and (perhaps most importantly for a new franchisee) experience.
What are the franchise setup requirements?
Most franchisors have geographic locations where you must start your business, but they may differ on other requirements. For instance, they may restrict the products or services you can sell, or they may use standardized pricing. It’s important to find out if your territory will be exclusive, or if other franchisees will be allowed to sell there.
When you purchase a franchise, you will also sign a contract detailing your rights and restrictions. It is critical to have a lawyer review the contract and explain anything that remains unclear before you sign it.
How is the franchise contract renewed or terminated?
Franchise contracts usually run for a specified term before review. You must understand the rules for both renewal and termination of your contract. These are your basic rights as a franchisee, so not understanding them puts you in a vulnerable position, both legally and in your daily business.
Take the time to research any franchising opportunity thoroughly before you commit. Although opening a new business is exciting, it always involves a level of risk. So, take a step back and understand what you’re getting into. Minimize the risk by carefully studying your franchise possibilities and getting as many facts as possible ahead of time. In doing so, you can make a more informed decision that maximizes your chance of prolonged success.