Selecting the right franchise
The importance of researching and investigating franchisors and brands before making your decision cannot be stressed enough. Franchise systems vary greatly from each other, so choosing the right system can make all of the difference.
You might consider buying a franchise in an industry in which you are already knowledgeable, for example, so you can make use of your existing skills and experience. Even more importantly, however, you should choose a franchise system in which you can envision yourself enjoying the work, since running your business will require a lot of your time and money.
The following are some additional considerations when selecting a franchisor and system.
Brand power and the franchisor
A franchise system’s value is largely based on the scale of its reputation and brand recognition, but ‘bigger’ is not necessarily better. Asking the right questions could mean the difference between finding the next big thing or finding out a ‘sure thing’ is going wrong. So, it is just as important to look at past and projected information for a franchise system as it is to consider that system’s current performance.
With this in mind, you should consider the following questions:
● How well-known are the brand and its associated products or services?
● Is it a long-standing company with a history of success or a new business whose future may be less certain?
● Are there both corporate-run and franchised locations?
● Does the company have a positive reputation with the public and through the media?
● Is the system still growing?
● What is the financial health of the franchisor?
● How long has the franchisor been operating?
● Has it been profitable throughout its history?
● Who are the directors and officers at the franchisor level and what is their background in terms of industry expertise?
● Does the company have any problems with its creditors?
● Is it engaged in any litigation?
● Is the system truly being franchised locally or is it merely licensed on a regional basis?
To gauge the franchise’s health and profitability, for example, you might weigh the number of new franchises being opened against the number of existing franchises ceasing operations; and you can look into whether existing franchises being renewed or extended at the end of their initial terms.
An analysis of the franchisor’s current financial position and future growth prospects can be a complex process and the implications of its financial statements may not be clear to unfamiliar readers. The assistance of an accountant or other professional advisor may therefore be valuable at this stage in planning.