Today we’re going to help you understand what’s involved in evaluating a franchise opportunity. Ultimately, this is incredibly important if you are to find an opportunity that’s the perfect fit for you and your specific needs.
If you’re to become a highly successful business owner, you need to work out whether the franchise in question meets your personal goals and business objectives before you invest. If a franchise opportunity doesn’t align well with your broader goals, it is unlikely to be a success in the long run. To help prevent this being the case, let’s explore how you can assess whether a franchise opportunity is right for you and avoid any regrets further down the line.
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You should find out:
1. If there’s demand for the franchise in your preferred location
Make sure that you do plenty of research before investing in a franchise opportunity. Check that there’s enough customer interest to build a profitable business and potential for expansion (you never know, you might decide to buy additional franchise units at some point in the future).
As well as there being consumer demand, you also need to consider whether the location is right for other reasons. If your business is not easily accessible, it will be tough to achieve profitability, no matter how much customers want or need you.
If the franchise model is based on you offering your services at customers’ premises or delivering products to them, then the location of your franchise may not be as important. You do, however, still need to consider factors like rental costs and accessibility for your employees.
2. If the franchise has a proven track record of success
With there being over 48,600 franchise units in the UK (the highest number yet and almost two times more than 25 years ago), it’s easy to see why franchising is such an attractive business opportunity. However, each franchise brand will vary significantly and only a handful of them will be the right fit for you.
The best franchises are tried and tested and, more importantly, can prove their track record of success. Here are some ways that you can establish the performance history of a franchise:
- Do your research: You can find out financial information about a franchise that you’re interested in if the franchisor is a company registered at Companies House. The latest accounts should be available for you to view here. If you have trouble finding them, ask the franchisor to provide you with details of the business’ financial performance.
- Request pilot performance data: If you’re considering investing in a relatively new franchise, then the franchisor may not have adequate financial information to share with you. If this is the case, you should ask the franchisor to show you the franchise pilot results to give you an idea of the viability of the business.
- Speak with other franchisees: The best franchises will encourage you to speak to existing franchisees within the network. It’s in the franchisor’s best interests for you to make an informed decision about whether their franchise is right for you. Talking to franchisees from within the network can give you a good idea of how profitable the business is, how it is growing and how well the franchisor supports their franchisees.
3. If the franchise suits your personal goals and strengths
This is arguably the first thing you should ask yourself when evaluating whether a franchise opportunity if right for you. Everyone has their own motivations for becoming an entrepreneur – be sure that these can be achieved with the franchise in question.
Whether it’s earning more money, spending more time at home or entering a new sector, make sure to determine whether the franchise can help you achieve these goals. Again, you can do this by speaking to the franchisor and existing franchisees.
4. What you’ll get in return for the franchise fee
As a first-time franchisee, it might be difficult to tell what’s good value for money when it comes to paying your franchise fee. For starters, it’s important to understand that the franchisor shouldn’t profit from it, as it covers:
- Access to the franchisor’s intellectual property
- The cost of recruiting you
- The cost of training and supporting you
The cost of the initial fee can range anywhere from £1,000 to £1 million and depends on the type and size of the franchise you're purchasing.
Remember that just because the franchise fee is significant, it doesn’t mean the training and support will be top quality. Equally, an opportunity with a smaller franchise fee may be one of the best franchise options for you with great support from the franchisor.
The only way to be sure you're getting a good deal is to do your due diligence. Click here to see another one of our articles: The Complete Guide To Franchise Costs In The UK.
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5. What the terms of agreement are
The whole franchise model is based on the fact that franchisees follow guidelines and standards set by the franchisor. In a franchise relationship, the franchisor has the upper hand, and the franchise agreement will contain a raft of obligations which you’ll be expected to fulfil.
However, when you’re reviewing the franchise contract with your solicitor, be sure to look out for any unreasonable restrictions. Even though the franchisor has control over many aspects of the business, you should still be able to run your franchise with freedom and flexibility. If you feel that there are too many restrictive conditions in the agreement, you can either try to negotiate them or walk away and find a franchise opportunity which is more suited to your needs.
Investing in a franchise opportunity – the summary
Hopefully, you should now feel more confident evaluating whether or not a franchise opportunity is right for you. Remember, buying a franchise is a significant investment to make, and so you need to be 100 percent certain that you've found the right one. If you have any doubts, then you should trust your gut instinct rather than making a decision that you may end up regretting.
If you’re eager to learn more about investing in a franchise for the first time, make sure you check out another one of our articles: 6 Questions You Should Ask Yourself Before Deciding to Become a First-Time Franchisee.
Becky Martin, Point Franchise ©