6 Tips to Evaluate a Franchise Opportunity

Tips to Evaluate a Franchise Opportunity

Are you interested in owning a franchise, but have trouble finding the right one that suits your budget and skill set? These tips will help you to evaluate a franchise opportunity that best suits your needs and goals. There is no standard solution for all franchise opportunities and thus it must be considered on a case by case basis for optimum results.

1.Estimate the franchise fees and set-up costs

Most of the franchising opportunities require an upfront fee to get started. This fee could range from hundreds to hundreds of thousands of dollars. Though few franchisors offer the option to finance for them, it is best to have at least $10,000 to invest up-front.

2.Ensure profitability

Ensure the franchise opportunity you are pursuing is a profitable one and worth your time with the following measures.

  • Unit growth: What is the total number of units opened in the last few years?
  • New franchisee success rates: What percentage of new franchises are still operating after a year?
  • Franchisor financial statements: Analyze the franchise disclosure document and look at average sales per unit.

3. Evaluate the support systems for franchisees

Find out what are the different support system put in place by the franchisor for the success of the newly joining franchisees?

For instance, Do they have training centres? What are the other resource centers that are available for franchisees?

4. Understand the time commitment involved

Franchise is usually a long term commitment that can last upto several decades. For instance, the franchise term for McDonald’s, is 20 years.

You might have to invest all your time into one franchise unit without the distraction of a second career. If you feel like you might end your contract sooner then make sure you select a brand with good resale value.

5. Choose the right available territories

Location is vital for the success of any franchise. It will not make sense to open a franchise close to an existing franchise. Or open a franchise far from the crowd or where there is no demand.

If you have a location in mind, make sure the franchiser wants to open in that area. If not, decide whether you’re willing to relocate.

6.Brand Recognition or Growth

One of the perks of franchising is that you get to start your own popular brand of franchise. Is the brand you have in mind a popular one or a smaller brand with recent success? This will determine whether it will be profitable to operate a franchise for a prospective brand.

Big brand usually have a bigger set-up costs. While a relatively young brand might have an easier entry point, so long as the company has been growing in revenue.

Source: Hubspot

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