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How to Evaluate a Franchise Opportunity

Check the Franchisor’s Track Record

One of the best ways to determine if a franchisor can really help you achieve your goals is by looking into their history. How long have they been offering franchise opportunities? How many of their franchisees have succeeded? Do they have a refined, repeatable, and easily taught business model? These are just some of the questions that you need to find the answers for. Bear in mind that in an ideal scenario, any franchisor you partner with should have had long term success. Meaning they should have an established, profitable franchise network that has been in place for a number of years. What’s more, you should be able to find proof that the franchisor has helped other aspiring entrepreneurs build their own customer bases, establish themselves in new territories, and become financially independent.

Evaluate the Brand’s Strength

You can assess the strength of the brand you’re thinking about joining by researching its overall recognisability, and standing in the industry in which it operates. It’s important to realise that by teaming up with a well-known franchisor you’ll significantly raise your chances of success. Put yourself in the shoes of a customer for a moment, if you’re looking for a particular product or service, you’ll almost always choose the business that you know best. For example, a consumer that wants high-quality fast food will almost always go to McDonald’s over a brand that’s not well-known. As a consequence of this, you’ll find it easier to build your customer base if you’re operating under the umbrella of a recognised brand – bear this in mind while you’re researching franchise opportunities.

Of course, it should be remembered that partnering with a smaller brand is still a truly viable way to achieve your goals. In fact, you’re almost certain to find that doing so will be far less expensive. Just check that existing franchisees have experienced strong growth during the years they’ve been in operation before you commit to a franchise agreement.

Assess the Initial & Ongoing Costs

It could be argued that this is the most important step that you must take during a franchise business evaluation. You need to discover what the initial investment is including the franchise fee, startup costs, and working capital. Can you provide the necessary capital? If you can’t, can you get a loan with favourable terms that will enable you to establish yourself? Leave nothing to chance. If the costs aren’t clear, wait until you see the franchise disclosure document. This will contain all you need to know about the financial requirements.

On top of this, make sure that you’re aware of any ongoing charges that you’ll be expected to pay. These are normally for royalties, as well as operational or marketing support, and are usually taken directly out of your turnover. But most franchisors won’t take more than 10%. Make sure that you won’t be asked to pay an unreasonable amount.

Determine the Potential Return on Your Investment

If you want to know how to evaluate a franchise business effectively, you must first familiarise yourself with financial statements and documents and what they show. This way, when you receive a disclosure document from a franchisor, you’ll be able to determine your chances of building a profitable business while following their model. The factors you must take into account include but aren’t limited to, franchisee success percentage, and individual franchise unit growth.

While many franchisors will provide you with an estimate of how much you’ll earn per annum from your third year in operation onwards, you can’t be too careful. Verify everything they say.

Look Into the Training & Support Provided

While you’re browsing through our top 10 franchises you’ll see that each opportunity involves comprehensive training and support. This is no coincidence. If you’re thinking about starting your own franchise business, you need to know that your parent company will be there for you. Research their franchisee support system – how long is the training and what does it consist of? Will they provide you with marketing help, and if so how long for? Are there bespoke systems that you’ll be given access to? If the answers to these questions are positive, then you’ll know that your franchisor is just as invested in your business as you are. Don’t forget, the more support you receive, the more likely it is that you’ll achieve your goals.

Find Out if the Culture Fits You

You want to be part of a collaborative culture that enables you and your fellow franchisees to express your ideas, and improve the franchise network you’re a part of. The only way to find out if a franchisor can offer you this is by talking to their current franchisees. After you’ve attended a Discovery Day you’ll likely be given contact details for several of them. Speak to them and get all of your questions answered. After you’ve done so, you’ll be able to make an informed decision.

Talk to the Franchise Fame Team

Now you’re aware of how to evaluate a franchise opportunity, you can search through the opportunities on this page, or browse through our specially designed directory, and find a franchise that matches you. Of course, if you’d like further guidance and assistance, you need simply reach out to Franchise Fame – make an enquiry today.

Wondering what are the most profitable franchises to own? See our list here.