At Point Franchise, we talk about ‘proven business models’ a lot, but what does the phrase really mean? Let’s find out once and for all below.
When browsing franchise opportunities, you’ve probably seen the term ‘proven business model’ thrown around to reassure potential candidates that it is a viable business opportunity. But you might not actually be fully aware of what this means and why franchise brands can claim that they have it. And do all established franchises have a proven business model?
While franchising is generally considered to be a less risky route to business ownership, the reality is, not all franchises are created equal. In this article, we dive into what a ‘proven business model’ really means in the franchising world, how you can spot the ‘real’ from the ‘fake’ and why it’s so important to do this as part of your due diligence. If you’re new to franchising, let’s have a quick reminder of what the franchise model actually involves.
What is franchising?
Franchising is a versatile concept that can manifest itself in various ways. However, at its heart, franchising is a business relationship - or agreement - between two parties. These two parties are the franchisor and the franchisee. Generally, the franchisor is an individual or group of people who own a company. The franchisee is an individual or group of people who want to open a business using the name and products/services of the franchisor’s company.
Lots of savvy entrepreneurs are attracted to franchising, as they can:
- Operate under the name of an established business
- Receive support from experienced business managers
- Step into a ready-made business system that’s been shown to work
Now we’ve got the basics out of the way, let’s explore what ‘proven’ actually refers to when we talk about a franchise’s business model.
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1. A track record of success
If a franchise has a proven business model, it means that its business plan has been successful time and time again with different franchisees. If a franchise can’t prove its successful track record or is hesitant to show you financial reports from previous years, this is a red flag. If it feels like the franchisor is hiding information from you at any point in your franchise journey, don’t take it lightly, push to find out the reasons why.
2. Proof of business growth
The franchisor should be able to demonstrate that the brand has grown over the years. This helps show that there is significant earning potential and it’s a worthwhile investment. If the franchise has been up and running for a while, this often means that the franchisor has ironed out any kinks in the franchise system, so new franchisees have a better chance of being successful without any hiccups.
This doesn’t mean that you shouldn’t invest in an emerging franchise, but make sure that they have successfully completed their pilot operations. These are where the franchisor tests the business concept to see if it can be replicated in other locations with other people, how franchising will impact the operation of the business concept, and any new ideas for the development of the franchise system. If you’re ever in any doubt of the viability of a franchise opportunity, you can consult a franchise lawyer or refer to resources provided by the British Franchise Association (BFA).
3. A comprehensive training package and ongoing support
In order for a franchise to advertise as having a ‘proven business model’, it, without a doubt, needs have a strong support network for its franchisees. After all, this is why so many entrepreneurs are attracted to the franchise model in the first place. If you’ve always dreamed of entering a new sector but are currently lacking the skills and expertise to dive straight in, you can learn all you need to know with tried and test training schemes that cover all aspects of running your own business in a given industry.
As well as providing an initial training programme, an operations manual, helpful materials and ongoing support, there is usually a dedicated franchise team on hand to answer any questions you have straight away. Franchises will provide different levels of support, so make sure you are happy with how you can deal with difficult situations and who you can call when you’re in the dark.
Some entrepreneurs might prefer a more ‘go it alone’ attitude, which is fine if that’s what works for you and as long as you are adhering to the franchise agreement. But if this isn’t what you’re looking for, make sure you’re content with what’s being offered.
Also, it’s important to follow up what is promised to you with existing or previous franchisees. Before you invest, get in contact with them and ask them if they are happy with their overall franchising experience, including the training and support they receive.
A franchise with a proven business model is able to support franchisees when anything is thrown at them and has the infrastructure to develop plans, set targets and track results with the franchisees.
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4. A clear plan for the future
If a franchise brand is to be successful long into the future it needs to have a clear plan and set ambitious, yet still achievable, goals. Franchises with a proven business model make sure that all relevant information regarding the fulfilment of the brand vision is communicated consistently with the franchisees.
5. A recognisable brand
Again, being able to operate under a well-known brand with an existing customer base is another big perk of the franchise model. Franchises with a proven business model have a strong brand presence and are often industry leaders. Recognisable franchise brands can often attract customers and generate profits much quicker than independent start-up businesses.
Proven business models explained
Hopefully, the next time you see the term ‘proven business model’ during your franchise research you will have a better idea of what it means, and you’ll also be more familiar with what you should be looking out for in potential opportunities. If you’ve found this helpful, you might also be interested in the six things to know before becoming a franchisee.
Becky Martin, Point Franchise ©