Evaluating a franchise opportunity

The success of any franchise relies on having enthusiastic and driven franchisees on board. To guarantee that franchisees do their best to operate a profitable business, franchisors should ensure that a comprehensive and engaging franchise support system is in place.

If you’re considering starting a franchise, then you’re probably attracted by the reassurance that you’re not on your own, and that you have the franchisor’s experience and support to back you up. But how do you know if everything the franchisor promises will become reality once you’ve signed the franchise agreement?

>> Read more:

• 10 Key Questions to ask Franchisors
• Meeting the Franchisor: First Impressions Count.
• Franchisors and Franchisees: Know Your Obligations From Day One
• Why it’s Important for Franchisors to Visit Franchisees.
• How to develop an effective relationship with your franchisor
• What support should you expect from the franchisor?
• What do franchisors look for in a franchisee?

This answer is by closely scrutinising all the documentation that the franchisor gives you, speaking to them at length and meeting up with existing franchisees to confirm the support received has lived up to their expectations.

Evaluating a franchise opportunity

Here are six ways that you can review the franchisor’s support package to understand if it’s right for you.

1. Understand how the support structure works

---

If you’re starting a franchise with a relatively new and small business, then it may be the franchisor that provides the support and training in person. However, it’s much more likely that you’ll receive training from a representative of the franchisor.

If this is the case, then you should ask to meet with your support network as part of your due diligence. You’ll want to make certain that the person on hand to give you advice and guidance has the relevant experience with both the franchise model and business ownership. Find out how often they plan to visit you, as well as whether they have the necessary skills to support you. If you are just one of many franchisees that they support, the visits may not be as often as you would wish.

2. Find out if the training is fit for purpose

---

One of the main benefits of the franchise model is the training that comes as part of the package. Every franchisor should deliver training on all the key elements of the business. The training programme should cover business skills such as recruitment, staff management, marketing and customer acquisition, as well as including technical and systems training.

What training should I expect?

The length of the training will vary from franchise to franchise, but tends to last between a few days and a few weeks. The programme should be comprehensive and made up of classroom-based and on-the-job coaching, so that franchisees are fully prepared to get their business off the ground.

If you’re concerned about the quality or quantity of training on offer, then you may want to reconsider the opportunity.

3. See the support in action

---

Before signing the franchise agreement, ask the franchisor If you can visit a couple of franchises to get a feel for how they are run. You’ll be able to see first-hand how well supported the franchisee is and if there are any issues within the business. Any problems that are occurring within the franchise may be a warning sign that the franchisee is not getting the help they need.

4. Speak to existing franchisees

---

If you don’t get to spend time within a franchise operation, then at the very least you should speak to existing franchisees. You’ll be able to ask them about their expectations of the support on offer compared to the reality. Find out about the initial training programme and if it prepared them to operate their business. Have they received any ongoing training? Have they felt adequately supported throughout their whole franchising journey? The answers to these questions should tell you whether investing in this franchise is the right decision for you.

Watch out for red flags

A good franchisor should encourage you to meet with existing franchisees. If they try to stop you from doing so, or attempt to cherry-pick the franchisees you speak to, this could indicate that they have something to hide.

5. Find out if you’re high on the agenda

---

Starting a franchise with a driven, exciting and growing franchise may seem like the right move, but this may not be the case. To develop and expand the franchise model, the franchisor may be placing all their focus, time and energy on their growth strategy rather than providing the day-to-day support that existing franchisees need. During initial meetings with the franchisor, discuss their long-term plans and how they’re preparing to get there. You should feel motivated about your future as a franchisee within the business, rather than concerned that you’ll be lost among the franchisor’s ambition.

6. Opportunities to learn from other franchisees

---

The training and support provided by the franchisor and their head office team will undoubtedly put you in a great position to run your franchise successfully. But what can be even more beneficial as a new franchisee is learning from more experienced franchisees from within the network.

A good franchisor will understand this and put in place opportunities for franchisees to meet up and discuss any issues that they may have and share best practice. A franchise that has regular calls, video meetings or conferences for all franchisees to participate in is likely to have a culture of encouragement which will be promoted by the franchisor.

You can never do enough research

So, before you sign the franchise agreement, it’s imperative that you do research the opportunity fully. The franchisor will want you to choose their franchise to invest in over the competition and may say what it takes to make this happen. You need to be confident that you’ll end up getting what you’re expecting and don’t just take the franchisor’s word for it.

The most effective way to do this is to get the answers directly from the people providing the support you’re relying on, as well as the franchisees that will have already received it.

As well as making sure that the franchisor’s support package is right for you and becomes a reality after investing, it’s important to look out for any warning signs that it isn’t a good idea. Otherwise, you might end up having serious regrets further down the line. To make sure that you don’t end up investing in the wrong franchise, keep an eye out for the following five red flags when researching the opportunity.

5 red flags when buying a franchise

1. Unhealthy franchisor-franchisee relationship We have already highlighted the importance of speaking to existing franchisees during the due diligence stage. As well as finding out about their own experiences when starting the franchise and the support they received, ask them about their relationship with the franchisor. A good way to get a true idea of what your relationship with them might be like is speaking to franchisees that the franchisor doesn’t recommend. If the franchisor tries blaming the franchisees for any problems or speaking about it negatively, this suggests there could be problems with this franchisor in the future.
2. Incomplete or missing paperwork You’ll want to check that none of the important documents are missing or organised unprofessionally. There are plenty of franchise opportunities out there and this is the franchisor’s chance to present their opportunity and encourage potential candidates to get involved. How can you trust them to be a reliable, efficient and highly skilled franchisor if they can’t even do that right? If something sounds purposefully vague, this could be because the franchisor is trying to conceal something. You have every right to question anything that doesn’t seem right with an expert and the franchisor themselves.
3. A pitch that feels too salesy If the franchisor or franchise representative delivering the franchise pitch seems desperate or almost as if they are pressuring you to sign, it could be a sign that the franchise is going through a rough patch or is unstable. Starting a franchise is a big life decision that involves a big career change, a lot of responsibly and parting with your hard-earned cash. Respected franchises that are doing well will most likely have interest from a number of candidates and therefore will not offer discounts at every chance they get. Therefore, you will of course want to make sure that you are investing in a franchise that is successful and profitable.
4. Not being financially stable Most businesses will experience ups and downs at some point, but you need to look into the extent of the bad times. Analysing the franchise’s financial records is a crucial part of the due diligence process. You should be able to find out about the net profits, franchisee backgrounds, gross sales, average incomes, financial statements and bankruptcy history in the franchise disclosure document. Combining this information should provide a good idea of how the franchise is doing financially and what the future holds.
5. Being in operation for a while but with few franchisees Look out for how long the franchise has been around for and how many franchisees they have. If the franchise seems perfect but there are very few franchisees, there might be something you are missing. It is not always a complete bad sign, but just be sure to look into it further if it is the case.