Six Key Points to Help You Evaluate a Franchise
By Bruce Tannas
When you buy a franchise you want to buy a proven business system. While there are famous franchises out there like Tim Horton’s, McDonalds, etc. there are also a number of quality smaller franchises you can purchase as well. You need to satisfy yourself that a franchise opportunity (whether it is large or small) represents a good business system that is going to be a good fit for you and you can thrive with. When it comes evaluating the opportunity that a franchise provides, there are a few key points of due diligence that will help you to evaluate a franchise opportunity.
1) Speak to the Franchise Business Development Person.
Make sure that you have a list of questions ready for them to answer and don’t be surprised if they have some questions for you. At the end of the day you are going into a business partnership with them so you both have to fit together.
2) Read the Franchise Disclosure Document.
Franchisors, in most provinces, are required to provide a franchise disclosure document to a potential buyer and they provide a good basis to investigating the franchise. In the document they will supply information such as historical sales franchisee results, market information, projections, and other key information. Note that very often, a franchise may ask you to sign a non-disclosure agreement (NDA) as they are providing you with sensitive information.
3) Determine the Level of Initial and Ongoing Support for Franchisees
It is important for you to understand how much support they offer because you are buying their system including their support. In this area, not all franchises are created equal with some only providing initial support while others provide ongoing support. You need to satisfy yourself that the franchise offers the level of support you require.
4) Look at the Franchise Fees and Costs
The overall cost of a franchise includes the initial and ongoing franchise fees, marketing fees, and additional markup on products you buy from the franchisor. While cost shouldn’t be your primary concern, getting value for money should. You need to ask yourself whether you will get enough value from the franchise to offset the additional cost.
5) Speak to Current and Former Franchisees
You’ll want to speak to a few current and at least one former franchisee if possible. Have a list of questions to ask about the franchisor including about the support the franchisor gives, how they treat the franchisees, if the franchisor is open to input from the franchisee, and if they feel they are getting value for money in the franchise system.
6) Ask Yourself if this Franchise Seems Like a Good Fit for You?
There are a few questions you should ask yourself before proceeding further. Will you like the work you will be doing? How do you feel about the requirements of the franchisor on your time and money? Does this use my skill set and is there room to grow? Do you feel that the franchisor will treat you well after the deal has been signed?
Buying a franchise is a big decision and you need to take the time to satisfy yourself that you’re comfortable with going in business with the franchisor. While this isn’t an exhaustive list of the due diligence required to purchase a franchise, it represents a good start.
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