How to Assess a Franchise Opportunity?
First thing on the evaluation list is the company itself. It is important to analyze whether the business is really a profitable venture or not, so that investment in an incorrect business is avoided. Next point to check is whether the product is new or is already established on the market. An established product has higher chances of pulling clients towards it, which is good for the profitability from the business. The market of the product or service also needs to be assessed because a product whose demand is much less, will surely not do well. Therefore, such a franchise ought to be chosen whose demand in the local area is substantial. Having competitors in the market can also lead in order to less revenue generation. The reputation of the product and the suppliers from the product must be good to establish a strong hold on the market. Another point to evaluate in a business are the services and warranties from the product. One must identify which party will be prone to provide after-sales services to the customers.
A franchisor must be well-renowned on the market and must have a stable business. The financial strength from the franchisor is also important to note and its capacity for assisting its franchisees must be assessed. A good franchisor will be the one who helps its franchisees in getting the financial loans sanctioned, provides training and support from time to time and is able to help its franchisees. The number of franchisees who are already part of their business gives an idea about its association using the franchisees. The franchisor must have a clean legal history and should be a member of the International Franchise Association (IFA). As being a member of this association indicates that the franchisor should have followed and is probably still following strict code of ethics for running the company efficiently.
A thorough evaluation of the franchising package is essential to avoid doubtful situations later on. The degree of independence awarded to the franchisees for handling the company must be analyzed. Total expenditure in buying the franchise should be calculated which should include licensing fees and cost with regard to equipment, land purchase, inventory, promotion and training. Other costs like royalty, insurance, training and cooperative advertising fees that must definitely be subsequently paid to the franchisor must also be taken into consideration. Studying the franchising package in detail will help in identifying if the opportunity is suitable for the prospective franchisee or not really. The terms and conditions for renewing and reselling the franchise should also be studied carefully.
Franchise Disclosure Document
Franchisors are bound to furnish all the details that is required by prospective franchisees in the business disclosure document. This document must be provided to the buyers of franchise business no less than ten days before the deal of purchase is signed between your two parties. It is a very crucial document which contains audited financial statements from the company, the overall cost of setting up and maintaining the company, responsibilities of both parties, legal proceedings involving the franchisor and/or its employees and contacts of all of the franchisees who are already a part of the company.
Assessing personal strengths and weaknesses help in identifying personal capabilities and willingness to stick to the norms set by the franchisor. Proper tuning between your parties produces good results and if a prospective franchisee includes a certain level of discomfort while working with the franchisor, the company relationship will eventually fail. Self assessment should be done when it comes to educational qualification, experience, learning ability and financial viability.
Following evaluating the franchise opportunity thoroughly, a rough idea about its earning projections must be made to determine if the business is profitable or not. It is advisable to take the aid of a franchise consultant who can provide guidance during the whole process of buying a franchise. Now that you understand how to evaluate a franchise opportunity, evaluate the opportunities that curiosity you, start your career as a franchisee and grow together with your business.