Sussing Out Franchises

How to size up a franchise in six steps.


Sussing Out Franchises

Franchises are big investments and they’re long-term deals. So finding the right one requires a fair amount of introspection and a lot of rational thought. Before any steps are taken, you need to determine what you really want from the investment and the qualities you seek in a franchisor that will help you attain the lifestyle you want. This means making a list of your goals and drawing a line between ‘nice to have’ and ‘must have.’

What to know

Here you’ll find six steps for researching and comparing franchise opportunities against their ability to deliver your goals. The criteria you will use to compare and contrast businesses, regardless of their industry, are their ability to deliver your desired lifestyle.

1. The initial interview

The first interview and presentation of the franchise concept is most likely to be conducted by telephone by a franchise sales rep. This is a ‘getting to know each other’ step, where you help the rep understand who you are, what makes you successful, and what you’re looking to accomplish.

The franchise sales rep in turn helps you understand who the franchisor is, what makes the franchise opportunity unique and who makes a successful franchisee. Here you both start determining whether your skills and aptitudes match the requirements to succeed.

2. Qualification

At this stage, the franchisor will seek to gather and offer more specific details, including whether you have the financial capital. The purpose is to determine if there is a fit from the franchisor’s perspective. This interview may be conducted by telephone or in person.

If you create an open and honest dialogue with the franchise rep, they’ll probably see the potential fit before you do because of an insider’s perspective on what it takes to win in the system.

3. FDD and Franchise Agreements review

At this stage, conduct a business review of the terms and conditions of the Franchise Disclosure Document (FDD). Make sure you and the franchisor are in agreement on all major points of the Franchise Agreement, that it makes sense, that you can live with the terms and conditions, and are prepared to make the commitment. If there are commitments or obligations in the franchise agreement you can’t live with, end the process here.

4. Franchisee research

Once you’ve made it this far, it’s time to interview lots of franchisees, gather data, compare the information you receive from franchisees with what you received from the franchisor, and determine whether you will produce your desired results with a high degree of probability.

This is a period of intense info gathering and analysis. Here’s where you test the veracity of the franchisor’s systems and whether the franchisor is skilled, has a profitable business model for the long haul, and the likelihood of whether the franchise can produce your desired lifestyle.

It’s also time to invest in professional advice. You need to have a franchise attorney review your FDD and FA and an accountant review your business plan and financials.

5. Visiting the franchisor

Never do business with people you haven’t met. You’re entrusting your dreams and capital to the care of the franchisor leadership. Decisions made on the executive level have an impact on whether you’ll be able to meet your personal objectives, so go to the corporate offices, meet the decision-makers, shake their hands, look them in the eye, and ask tough questions.

6. The yes/no decision

It’s time to make up your mind about whether you design a new life and career of your choosing or go back to the way it was. If your gut says no, listen to it. Rather back out than invest in something you’re not happy with.

Decisions, Decisions

While a business may seem sexy, the products or services cool, the customers enjoyable, the business model resilient, and you fit in well, if the franchise opportunity won’t deliver your desired lifestyle with probability, it is the wrong franchise for you.

About the Author

Related Articles

© Franchise Zone / Entrepreneur Media SA (Pty) Ltd. All rights reserved.

Disclaimer: Reliance on the information this site contains is at your own risk. Readers are advised to consult their attorney and/or financial advisor prior to pursuing any investment. Please read our Editorial Disclaimer and Terms & Conditions of Use.

Is this information out of date or incorrect? Report it to our webmaster.