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How to… Evaluate a franchisor

You’ve identified your franchise of interest, now its time to quiz the franchisor. Here we reveal what you should consider when evaluating a franchisor.

After months of thorough research via the internet, franchise publications and exhibitions, you have identified a short list of opportunities that meet your background skills, budget and ambition.Now it’s time to delve deeper and discover if your potential franchisors tick all of the right boxes. When taking up a franchise, you are entering into a long-term business relationship with the franchisor – so it’s extremely important you check their background and business performance before making your commitment. You want to cover all aspects of the opportunity from the business itself and costs to your involvement and operation methods.

When meeting with a franchisor key questions you should ask are:

Do they have a solid trading history?

One of the biggest benefits of joining a franchise is that you can see your potential business success by looking at the network’s past and present trading history. If you’re looking into a franchise that has been established for more 10 years and has more than 50 successful franchise owners, you can feel confident that you’re onto a good thing. However, make sure you speak with a range of franchise owners, from newly-launched to those who have been with the franchise for many years – you can’t just take the franchisor’s word that everyone within the network is satisfied.

Are they financially sound?

Successful businesses – not just franchises – should be based on a sound business and profit model. Unless the business is a brand new franchise, you should be able to view at least the last three years of financial reports. These reports should be accurate and readily available – it’s by these reports you will be able to determine your financial requirements, targets and potential for the continued success of the franchisor.

Is there a genuine head office support structure?

The level of support and training available from the franchisor, for both start-up and more established franchise owners, will be crucial to the success or failure of your business. Remember, you’re in franchising for yourself but never by yourself. You need a franchisor who will be there to support you throughout your franchise term, especially in those first critical months.

What do they actually provide by way of support?

Support can cover a range of services, including initial training, accountancy packages and advice, national and local advertising, new product and system updates, telephone support and ongoing training. Many franchisors hold annual franchise conferences and have franchise owner associations to help build moral and give franchise owners the opportunity to share their stories and advise one another. Helping franchise owners become and stay successful brings additional success to the company and the brand. Ultimately, exceptional support breeds happiness and success for everyone involved.

What is their position in the market?

It’s always helpful to know your franchise of interest’s position within the market and who its competitors are. A well-positioned business is closely aligned to the needs of its target customer base, both current and emerging. Companies which anticipate and shape market trends have the best opportunity for long-term prosperity.

Are projected cash flows realistic?

You don’t need to be a financial expert, you just need to understand the essential things. How long will it take your new franchise to break even? This is one of the most important money-related questions you’ll need to answer. It’s no fun to feed extra money into a business to cover operating losses, but that’s the reality in most start-ups. You’ll normally find the answer to this question is a potential range of time for the franchise you’re considering, rather than a fixed period. Always plan that it’ll take the longest time within this range to reach break even, so you’re as safe as possible.

How tough is their interview process?

When joining a franchise you need to figure out if the business and people within the company are the right fit for you, but with the same token, the franchisor is going to make sure you are the right candidate for it’s network. The value of the answers received will be a matter for your judgment. You can, of course, verify the value of the answers by the experience of existing franchise owners. Speaking to existing franchise owners will form a very important part of your research. They have, after all, been living with the business and with the franchisor for some time already so their responses will help in your decision -making.You must choose those who you wish to interview, you should not let the franchisor feed to you only his/her best franchise owners.

For more insightful questions to ask a potential franchisor, look at our comprehensive check before cheque list.