How to Evaluate a Franchise Opportunity
Transact a franchise is no less than setting up a whole new business. It is true that the product or service is already in place, but that does not mean it is all set to go. Simply buying any franchise may not generate enough revenue to even recover your initial asset and the entire business may take a toll.
It is therefore very important to properly analyze a franchise opportunity before getting into the business. The pros and cons of buying a franchise business must be studied carefully so that you leave no leaf unturned and do not regret your decision later.
How to Assess a Franchise Opportunity?
• Franchise Business
First thing on the assessment list is the business itself. It is important to consider whether the business is a profitable venture or not, so that asset in a wrong business can be avoided. Next point to check is whether the product is new or is already traditional in the market.
An traditional product has higher chances of pulling customers towards it, which is good for the profitability of the business. The market of the product or service should also be assessed because a product whose demand is less, will surely not do well. Therefore, such a franchise should be chosen whose demand in the local area is significant.
Having competitors in the market can also lead to less revenue generation. The reputation of the product and the suppliers of the product must be good to establish a strong hold in the market. Another point to evaluate in a business are the services and warranties linked to the product. One must identify which party will be liable to provide after-sales services to the customers.
A franchisor must be well-renowned in the market and must have a stable business. The financial strength of the franchisor is also important to note and its capability of assisting its franchisees must be assessed. A good franchisor would be the one who helps its franchisees in getting the loans sanctioned, provides training and support from time to time, and is always ready to help its franchisees.
The number of franchisees who are already a part of their business gives an idea about its association with the franchisees. The franchisor must have a clean legal history and must be a member of the International Franchise Association (IFA). Being a member of this association indicates that the franchisor must have followed and is probably still following strict code of ethics for running the business efficiently.
• Franchising Package
A thorough appraisal of the franchising package is crucial to avoid doubtful situations in the future. The degree of independence awarded to the franchisees for handling the business must be analyzed. Total expenditure in buying the franchise must be calculated, which should include licensing fees and cost for equipment, land purchase, inventory, promotion, and training.
Other charges like royalty, insurance, training and cooperative advertising fees that must be subsequently paid to the franchisor must also be taken into account. Studying the franchising package in detail will help in analyze whether the opportunity is suitable for the prospective franchisee or not. The terms and conditions for renewing and reselling the franchise must also be studied carefully.
• Franchise Disclosure Document
Franchisors are bound to furnish all the information that is required by prospective franchisees in the franchise disclosure document. This document must be provided to the buyers of franchise business a minimum of ten days before the deal of purchase is signed between the two parties. It is a very crucial document which contains audited financial statements of the company, the overall cost of setting up and maintaining the business, responsibilities of both parties, legal proceedings involving the franchisor and/or its employees, and contacts of all the franchisees who are already a part of the business.
• Self Assessment
Assessing personal strengths and weaknesses help in identifying personal capabilities and willingness to adhere to the norms set by the franchisor. Proper tuning between the parties produces good results and if a prospective franchisee has a certain level of discomfort while working with the franchisor, the business relationship will eventually fail. Self assessment should be done in terms of educational qualification, experience, learning ability and financial viability.
After evaluating the franchise opportunity thoroughly, a rough idea about its earning projections must be made to figure out the profitability of the business. There are several types of franchise businesses in the market you can choose from. It is advisable to take the help of a franchise consultant who can provide guidance during the entire process.
Now you can evaluate the opportunities that interest you, start your career as a franchisee and grow along with your business.