Key Things to Consider when Evaluating a Franchise Opportunity
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Key Things to Consider when Evaluating a Franchise Opportunity

Key Things to Consider when Evaluating a Franchise Opportunity

One is either an individual or representing a private firm; it is important to vet a franchise before conducting a full-scale analysis. Retail Franchise Opportunities is growing very rapidly and if one wants to pursue a specific franchise opportunity, a complete detailed evaluation procedure should be followed, which few of them are given below:

  • Conduct management background inspection and verify the experience of key franchisor executives and support staff. Look for a brief insight into the franchise’s culture and stability.

  • You must clear your doubts regarding the fact that if the territory of the franchise is exclusive, or open or protected. In many cases, franchisors that offer small open territories create conflicts amongst neighboring franchisees as some franchisees will be more aggressive than others. There are also chances of a dispute with the franchisor over the territory. Some medium to large franchisors reports no instances of any form of litigation whereas some smaller franchisors have had to face many legal disputes. 

  •  Franchise Disclosure Document (FDD) can be obtained from the franchisor, and they are even available from various franchise websites that offer you other valuable information as well. Reference from financial statements can also be considered. Articles give you the idea about litigation, history and bankruptcy information thus review them wisely.

  • Choosing the territory is covered under article 12 of FDD. Depending upon the field of interest, industry, etc. have a look at what is trending in your territory. Measure the current status, whether it is experiencing the growth or loss or is stable.

  • The majority of the industries earn their revenue by just their brand name and royalty. A large number of franchisors will offer sliding royalty to the franchise owners based on the total revenue, i.e. the more you earn well, the less royalty you get to pay.

  • The franchisee should offer comprehensive training and that too by a complete team and not just an individual. Training must include the portion of onsite training for new franchisees that provides real-world franchise experience that the classroom can’t replicate. Training must be done away from the outdated process and procedures. Also, having a word and conversation with other franchise owners in the system can get you a brief detail and insight about the market status and present condition.

  • It is mandatory for any franchisor to make article 19 disclosure of FDD. It’s important that the franchisor makes a financial performance representation under article 19. The detailed financial information makes it easier to evaluate franchisee performance and make financial projections. Look for a growing and continuing stream of revenues from franchisee royalties. 

  • Article 20 contains information that indicates positive and negative performance results. It helps to shortlist the best one by reviewing the growth of the new franchisee and compare to franchisee termination. This number will reveal the net growth and will help to prevent it from misleading data and any disclosures. 

  • Tie-ups and partnerships involve legal procedures in which agreement generally lasts for 5 to 20 years. Once you have signed a legal agreement, then stepping back might cost you many bucks. Suitability encompasses a personal inventory of your core strength along with skills and whether or not you are suitable to fit into the franchisee culture.

  • Business strategy plans should always be four steps ahead of the present condition and outcome. Once the tenure of the agreement is completed, you can either renew it or take an exit from it, whether that would be selling or transferring the business.

Thus, either you are an individual franchise candidate or representative of a private equity group, or you are a multi-unit franchise, these keys will allow reviewing the franchise evaluation process. It will also provide an overview of a franchise investment at minimal cost and expense. There are many Small Retail Franchise Opportunities, out of which you can consider the most suitable one and go about it.

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