Sometimes knowing which rocks to look under is the secret to discovering what you’re looking for. Though there are many topics to explore when researching franchise opportunities, years of experience have shown that if you want to make sure a franchise is a good one, you need to ask four key questions:
1. How well does the franchisor prepare new franchisees to succeed?
This is a broad question but it is also the most important one of all. When you acquire a franchise, what you’re supposed to receive is a proven system for producing predictable results. The bargain you make is that the franchisor will teach you everything you need to do in order to succeed and you’ll follow its direction.
In order to evaluate how well a company prepares new franchisees, you’ll need to do three things.
- First, evaluate its training programmes to make sure that all functional areas of the business are completely covered and that systems are in place to assist you as you learn how to operate the business.
- Second, evaluate its initial unit opening support systems to ensure that you will have all the assistance you need with every facet of opening a new outlet. That means site selection, lease negotiation, financing, construction, supplies and inventory, and finding and training employees.
- The third area you’ll need to evaluate is the franchise’s front line support staff. You should make sure that these people know everything about the operation of a new unit and that they will be there for you when you need help. As the saying goes, in a good franchise you’re in business for yourself but not by yourself, so make sure this is the case.
2. How strong is the ongoing support?
After you get your first unit up and operating, you’re still going to need plenty of assistance to deal with the issues and problems that every business owner faces. So you need to know how well the franchisor is set up to provide ongoing support, assistance and training to help you deal with the challenges you’ll face.
You should also evaluate the franchisor’s ongoing efforts to make its franchisees more successful by maximising their collective purchasing power. Successful programmes can provide savings on supplies and inventory that offset most or all of the ongoing royalty fees a franchisee is required to pay the company, so this is a key factor to consider.
3. How good is the marketing programme?
In order to succeed, you need to attract enough customers to support your franchise. A good franchise opportunity will provide support to both initial and ongoing marketing programmes in order to produce those customers.
The initial marketing programme needs to drive enough trial customers into your business to solidify your primary customer base. Make sure you confirm that the company has specific strategies and tactics to accomplish this and that its programme works consistently in various markets around the country. Ongoing marketing programmes need to drive enough new customers to the business to offset attrition and meet growth goals. Check that the franchise has strong and consistent year after year same-store sales growth and that this result is accomplished by increasing customer numbers and not simply via price increases.
4. How much money can you make?
Many people looking at franchise opportunities naturally consider this to be the most important question, and there are two good potential sources of information to answer it. First, many of the best companies publish their earnings information in their Franchise Disclosure Documents. If they do, this will save you quite a bit of time in finding an initial answer to this question.
Whether the franchise you’re researching publishes this data or not, you still need to verify the information through the second source: calls to existing franchisees. You need to determine how much money a mature unit makes after operating for a few years.
You also need to know how the first year or two looks financially – when units typically reach the break-even point – and how much money franchisees need to subsidise their operations before they reach that point.
Be sure to compare the income expectations to the total investment size to confirm that the return appears to be reasonable. Finally, analyse how many of the existing franchisees own multiple units as a way of increasing their total earnings from the business.
The process you should go through in answering all of these questions is threefold. First, get the official answer to the question from the franchise company. Second, talk with multiple existing franchisees to validate, confirm and perhaps expand on the official answers. Finally, go back to the franchisor to clarify any conflicting information you have received so that you are confident that you have determined the correct answers.
Consolidating your answers
When you have the answers to these four questions, you’ll know if you have found a good franchise opportunity. If any of these four areas are weak, you should pass and find a different franchise.
Once you find a company that meets your expectations in these critical areas, make sure you match up well with the people involved. You should like them and feel comfortable about working with them. If you become a new franchisee, you’ll be in a very close relationship with these folks for years, so you need to be sure that everyone is on the same wave-length in terms of values and goals.