How To Determine If a Franchise Opportunity is Good or Bad?

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There’s never been a better time to open a franchise business.

Whether you’re looking to open a cracking cleaning franchise or a brilliant business training franchise, there is no end of choice; and therein lies the problem – how do you determine if a franchise opportunity is good or not?

In some cases, such as franchises like Molly Maid or Domino’s, this is pretty obvious with their history; but it isn’t always that clear with smaller franchises.

For every fantastic, straight-up franchise offering, there are a couple that are less than honest and which are just waiting for you to throw your hard-earned cash at them. In this article, we’ll take you through how you can work out if a franchise opportunity is a good one.

The Growth Factor

One excellent way of determining the viability of a franchise is to look at the company’s overall growth. Things to look out for include:

  • The number of new branches added in the past five years
  • The number of locations covered by the franchise
  • How many branches/locations have been lost in the last five years
  • Has the company expanded internationally?

These factors will give you a good indication of the direction the company is headed in.

Sales Talk

When considering a franchise opportunity, you will, of course, want to know how much money you’re likely to make. Because of this, it’s really important to find out the average sales per franchise unit.

Unfortunately, the franchisor is not obliged to share this information with you and some may be reluctant to give you an estimate for legal reasons. However, taking a close look at the contract and, perhaps, speaking with the existing franchisees might give you a good indication of the profits to be had from the franchise.

Success Rates

Success Rates

Again, the franchisor may be reluctant to give you the lowdown on its franchisee’s success rates. Still, you can get an idea by taking a look at the Small Business Administration’s loan failure rates.

This can be really useful as, for example, if a failure rate is 50%, this means that half of the people who took out small business loans have been unable to repay them – which is a strong indication that their franchise business has failed.

Rave Reviews

In the age of the internet, it’s really easy for people to share their opinions on everything from the government to the best high street sandwich shop and this includes franchise businesses.

Search online for reviews of the particular franchise business that you’re looking at and, there’s a good chance you’ll find lots of reviews and some handy tips and advice should you decide to go ahead with the opportunity.

Get It Straight from the Horse’s Mouth

Talk to existing franchisees about their experience with the company to find out what they like and don’t like about it and, how successful it has been for them.

For example, are they making profits for themselves or, is this swallowed up the fees paid to the franchisor? This can be a really effective way of figuring out if the business model is a good one and if it’s right for you.

A Question Of Support

When embarking on your franchise journey, you’ll need to know that the franchisor has got your back every step of the way.

When examining an opportunity, pay close attention to the kind of support you’re likely to receive, including training.

This is incredibly important as running a franchise can be a pretty lonely endeavour at times – particularly during the period before you’re making enough money to hire staff.

Don’t be shy about asking the franchisor about the level of support offered and how this will be delivered. For example, will you be able to get somebody on the phone if you have an urgent query or will you have to rely on email or messaging?

This can very much be a deal-breaker as you really need to know that you will be supported properly throughout your franchise contract.

Fine Print

The Fine Print

Speaking of your franchise contract, I can’t emphasise enough the importance of reading this extremely carefully and having a solicitor check it out for you.

If the business has anything dishonest or bad going on, details of this will be found lurking in the franchise agreement.

As with any other kind of business, the franchise agreement is created to protect both you and the franchisor and is also there to let you know what will be expected of you during the term of your franchise so, you need to know exactly what’s in it and, what that’s likely to mean for you.

Watch Out For The Sales Pitch

By their very nature, salespeople tend to be enthusiastic but, there’s a fine line between enthusiasm and pressure.

If the franchise salesperson uses pressure tactics such as telling you that you have limited time to make a decision, it may be time to head for the hills. Similarly, watch out for franchisors who are offering you a fabulous, one time only deal such as a discount on your start-up fee – when it seems too good to be true, it usually is!

Conclusion

Figuring out whether a franchise opportunity is a good one takes a combination of research, diligence and good old common sense.

Take the time to find out as much as possible about the opportunity and talk to people who are actually doing it.

Finally, don’t be drawn in by high-pressure sales pitches or special incentives as there will almost always be a catch.

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