Once you’ve signed a franchise agreement, you’re obligated to follow the franchisor’s rules and restrictions, so it’s important to know how to assess a franchise opportunity. Having a robust set of franchise evaluation criteria is key.
Every franchise opportunity is different, and there are lots of factors to consider before you make your final decision to invest in one. Let’s take a look at the key franchise criteria you should evaluate before becoming a franchisee, from market demand to the effective franchisor relationships.
Franchise evaluation criteria
Here are the top eight factors to consider when choosing a franchise opportunity.
1. The market
A franchise may have seen success in other territories, but how will it fare in your local region? While it’s impossible to know how successful a business is likely to be in a specific area, you can make an educated guess by carrying out market research.
Aim to review the level of demand for the franchise’s product or service in your local area and how competitors are performing. For more guidance, see our article, 5 Questions To Ask When Doing Market Research For Your Franchise.
2. The franchise’s history
Although a business’s age shouldn’t necessarily influence your decision to invest in it, franchises with a long history have probably perfected their models and strategies. Of course, young companies can offer fantastic investment opportunities too - take a look at our article on the pros and cons of investing in an up and coming brand.
Ultimately, research is vital. Whether a franchise has been in business for six months or six decades, it’s worth reviewing its track record.
3. The financials
When it comes to finance, there are three main elements you should consider in any franchise opportunity: the initial investment, working capital and ongoing fees.
The franchisor should be able to tell you how much you’ll need to invest and provide financial statements from existing franchise units, but don’t be afraid to do further investigation. Take the time to talk to existing franchisees and create your own financial projections.
Before you sign on the dotted line, you must be confident you’ll be able to keep your unit afloat until you turn a profit. You should also be able to adhere to the franchisor’s ongoing fee scheme, as well as any business loan and interest payment plans.
Underestimating the amount of money needed to start and successfully run a franchise unit is one of the biggest reasons why franchisees fail. Don’t fall into this trap; be honest about how much you can realistically invest.
Point Franchise has a selection of handy resources to help investors make the right decisions when it comes to business finance. Read our Complete Guide To Franchise Costs In The UK and explore your different funding options to get started. We also have articles on how to finance a franchise business with a limited budget and how to evaluate franchise costs.
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4. The training and support
The best franchises invest heavily in the development of their franchisees. Look for opportunities offering comprehensive training programmes covering every aspect of business ownership, from the company’s product range to handling franchise finances.
Initial training is crucial, as it brings investors up to speed with the franchise’s model, but ongoing support is just as important. As you grow your franchise unit, you’ll encounter challenges along the way and having an expert on hand to help is one of the biggest perks of becoming a franchisee.
Make sure the business you join has processes in place to support investors at any time.
5. The culture
Business culture is often overlooked by prospective investors, but it has a big impact on your life as a franchisee. Choose the wrong franchise, and you could end up not only resenting your decision but also struggling to find the motivation to push forward and reach your targets.
When you make your initial contact with the franchisor and visit their headquarters, think about how the business makes you feel. Do you get the sense you’re stepping into a caring and supportive environment? Does the franchisor share your values and ambitions? If the answer is no, it could be wise to walk away.
Our article, 7 Tips For Choosing A Franchise With The Right Culture For You, will help you make the right decision.
>> Read more:
6. The franchisor
Many prospective investors underestimate the importance of the franchisor-franchisee relationship, but it can make a big difference to your franchising experience.
The average franchise opportunity lasts for five years, so you must be able to establish an effective and long-lasting relationship with your franchisor. Trust your instincts when you first make contact with a franchise owner; often, we can tell whether we’ll be comfortable working closely with someone when we first meet them.
Our guide, Franchising 101: How To Evaluate A Potential Franchisor Relationship, has more information on this topic.
7. The restrictions
Franchising works well because franchisors establish an effective business model and franchisees follow it to the letter to launch additional branches. As a result, restrictions, limitations, rules and guidelines are central to the franchise system and you must be willing to adhere to them.
In order to make sure you understand your future responsibilities as a franchisee, we recommend you consult an experienced franchise solicitor. They’ll be able to flag up any potential issues. Good franchisors will present fair franchise contracts, but it’s worth getting a professional to decode the legal documents so you don’t have any surprises further down the line.
If you do come across any stumbling blocks, you could consider negotiating the terms of the franchise agreement with the franchisor.
8. The exit process
It may seem strange to evaluate your exit strategy before you’ve even invested in a franchise, but planning ahead is always a good idea. After all, if things don’t go to plan, you’ll want to be able to take action without hitting further problems.
Take the time to review any early termination restrictions or fees and discuss the process with the franchisor before you invest.
More information on how to assess a franchise opportunity
Choosing which franchise to join could be one of the most important decisions you make in your life, so it’s important you get it right. At Point Franchise, we aim to give prospective investors the details and guidance they need to make an informed decision. Check out the articles below to learn more about reviewing franchise opportunities or take a look at our bank of business guides.
You can also browse current franchise opportunities from the main menu to find your perfect investment option.
Alice Tuffery, Point Franchise ©