Evaluate Franchise-Ideas Against Fourteen Criteria

There are many franchise-ideas and opportunities available, such as food chains, pet care, housekeeping, senior care, publishing, fitness gyms, “handyman” and travel franchises. Whatever your passion is, there are many likely franchise opportunities that will allow you to do something you love, while still making a profit. “Inc. Magazine” and “Entrepreneur Magazine” are great sources of information on current franchise offerings and comparisons.

Prudent business practice demands a thoughtful investigation of the target franchise opportunity. One place to check would be the SBA failure rate ranking. Another good source of information is the franchise hound. It is good business to base your decision to invest in a franchise or any other business opportunity on solid research. Your research should, at a minimum, be based on the following fourteen criteria:

Criteria for Evaluating Franchise-Ideas:

  1. A review of the selected franchise business plan.
  2. Amount of franchise fee and ongoing fees and what do they include?
  3. Compare fees with other similar franchises. Are they competitive and consistent with the strength of the brand?
  4. Are the franchise-ideas consistent with your belief system and passion?
  5. What is strength of the brand? A strong brand will increase the likelihood of success but will be more expensive.
  6. What are the site selection criteria?
  7. Review marketing data on selected site including supply, demand and competition? Don't avoid competition. A competitor can attract clients to your business. The franchisor's marketing department can provide guidance on this.
  8. Are other businesses in the area prospering?
  9. Review of marketing and training support systems.
  10. Review financial performance of franchisor for past 3 years.
  11. Success record of startup franchisees. Interview other franchisees of your choosing.
  12. Review of start-up expenses and cash flow projections. Are the assumptions made in the projection reasonable? How much working capital will you need? Have a fall back position in the event your projections are overly optimistic. Obtain the services of a business consultant or CPA selected by you.
  13. Is the business site to be leased? If so what are the terms of the lease (term of lease, rights of inspection, rent increases, etc.). Who will own the site? What are the restrictive covenants, if any, on the assignment, sale or lease of any real estate?
  14. Legal review of franchise documents by an attorney representing you and whose practice specialty is in this area of law. How much control do the documents allow you to have?

Evaluating Franchise-Ideas:

It is important to evaluate all of your options and consider the advantages to owning a franchise. The franchisor’s program should help expedite the start-up phase by providing an action plan and helping you make crucial decisions such as site location, hiring new staff members and developing a marketing event for opening day. They also can assist with financing start-up costs and provide quick market penetration because of strong brand recognition.

It is good to know what you are getting into but after all your research you may have selected a franchise with capital requirements beyond your means. If that is the case you can simply move-on, start over, or look for a partner with enough capital to put you over the top. Your decision should be based on your personal situation and how risk adverse you are.

Franchised businesses typically have a proven track record of success. You can have confidence that the business will be successful if you have done your research, heed the advise of your consultants, work hard and follow the franchisors instructions.

Franchise businesses, like most business, had a tough time during the 2009 downturn of the financial markets and there were many failures. Those with solid concepts and business plans are doing well. Yet a significant investment of capital is necessary for even mediocre franchise-ideas. A franchise business is, however, still a great way to get into business and minimize start up risk.

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