You are currently viewing How to evaluate a franchise opportunity

How to evaluate a franchise opportunity

The awesomeness in franchises is that you have so many to choose from; the difficulty in franchises is that there are so many to choose from. There isn’t an industry without a franchise; within each industry, you will find a franchise opportunity in 2023 for each consumer profile. Now you are left with figuring out which franchise will be best for you.

Is franchising for you ?

Franchises offer many benefits, but they come with restrictions. To use a company’s brand, you must adhere to its rules, maintain specific operational standards, and possibly use specific vendors. The franchise will only be beneficial if you can work within those and other stipulations the franchisor states in the agreement.

Is there a market for the franchise opportunity

A franchise needs a market to operate in. Said market should be in growth and sustainable. Understanding the market will help you define your targeting efforts, business viability, and, ultimately, the franchise’s profitability.

Company history, structure, and financials

The franchisor must be stable, professional, financially sound, and collaborative. The franchisor’s culture has to fit with your vision; you want one that has stability and experience as your partner.

You will find some of the information you need in the Franchise Disclosure Document (FDD). The FDD contains their complete business details so you can begin your research. Articles 1-4 of the FDD contain the company’s history, management team list, litigations, and bankruptcy information.

Article 21 of the FDD will have the franchise’s financial statements for your perusal. Take the opportunity to scrutinize them; you can have a CPA look over them.¬†

Your capacity to invest in the franchise opportunity

You have to take stock of what you can afford to invest. Every franchisor wants a summary of your liquid assets, asset-to-liabilities, and net worth. The franchisor wants to know if you have the capital and resources to finance and grow your franchise.

Take note of the recurring fees

The franchising fee is a one-time payment, but you will pay other fees regularly throughout your relationship. You will pay marketing and royalty fees; these can be a fixed amount but will likely be a percentage of revenue. The recurring fees will have an impact on your margins and profitability.

Training and support

Training and support are essential if you operate in a highly complex or regulated industry. You want a franchisor that offers comprehensive support and training with updated procedures. You can ask current franchise owners about their experiences and opinions on the franchisor’s performance.

Exit strategy 

You never know what the future holds, so you must prepare for everything, including your exit strategy. Franchisors can impose restrictions that may hinder your ideal exit plan, so be aware of what’s expected of you.

Fusion Franchise is happy to help you find and excel in your franchise opportunity, contact us now.

Leave a Reply