Learning to identify the right franchise opportunity for you isn’t always easy. But there are certain criteria any business you’re planning to buy should meet
Death and taxes: these are the only two things in life that are guaranteed. Whilst all the research indicates that a franchise is many times less risky than an individual startup, franchising nevertheless still involves risks. Because of this, there are a number of key steps a potential franchisee needs to consider when weighing up whether or not a franchise is right for them.
The first stage in this evaluation seems fairly basic: make sure you can actually afford the franchise and don’t over-borrow. Seem obvious? It is but I’ve come across too many budding franchisees who’ve borrowed from the bank, family, friends and more – and then wondered why they got into trouble. And if you can afford the franchise, do you actually see yourself in the business? A franchise is not a job; you can’t just walk away at 5pm because you will be responsible for every aspect of it. If you aren’t convinced the business is for you, don’t buy it.
If you have the cash and commitment required for a given opportunity, next you need to establish that its support structure is robust. It should cover all the key aspects of the business: sales, marketing, finance, business planning, supplier network and administration. Take some time to read the operations manual whilst in the building, so you can get a feel for the strength and breadth of the support the system offers. I would also check that the franchisor employs ‘real’ people and that support is not only made available via the telephone or online.
The financials are also incredibly important. One of the first things I would want to know is whether this business offer more than one way of generating revenue. If not, then how robust is the single income stream? And while it is obviously important for a potential franchisee to know how they are going to make money, it’s just as vital to understand how the franchisor makes its own. If it is through ongoing royalties based on performance then the franchisor has a vested interest in helping you to grow the business; if they get most of their income from simply recruiting and churning franchisees then you might want to think again.
Another thing to look out for is franchises that have been in business for a number of years; longevity is vital. You want the franchisor to be stable and successful because this means you can ensure you’re joining a franchise that is making money. Ask the franchisor for access to their last three years’ accounts to check its financial stability.
Ultimately the more effort you put in buying a franchise, the better. Be thorough, do your homework and don’t rush.