In reality you are
taking your assets, which you own, and investing them in someone elses' brand
and operating system. You will always own your assets. You will always own your
corporation. But you will "do business as" (dba) a licensee of the franchisor.
Before You Select
A Franchise...
Step 1: Evaluate
Yourself
Your job is to
make an informed business decision about whether a franchisor's business
opportunity meets your needs and whether you can provide what the franchisor
wants and needs in a franchisee.
You need to ask
yourself basic questions:
What do you want
from life at this time? What are your wants, needs, and desires? What are your
goals, objectives, and dreams? What are you looking for in a business? Have you
decided to leave what you are now doing, not just the job, but the profession?
Have you made a
decision to become a part of another organization? Remember that in franchising
you joined someone else's business. You are going to be using their marketing
system to generate customers and their operating system to satisfy them.
Do you have the
kind of personality that can accept running the business according to someone
else's plan without feeling that it compromises your individuality? Do you have
an interest in doing this kind of work for the length of the agreement? Have
you ever worked for one company for five or ten years? Do you have related
skills, knowledge, abilities, and work-related experiences similar to the ones
required for running the franchise you are considering? Do you have the
financial resources to open and operate the business successfully? Can the
business support your lifestyle needs? Which of the franchises you are
reviewing meets your financial needs short and long term?
Step 2: Evaluate
the Franchise Opportunity
Evaluate the legal
documents from a business perspective. Determine whether the franchisor has
territory policies that might make franchisees less competitive in a highly
competitive environment. Many prospective franchisees erroneously believe that
having a large territory is best for them. It could, in fact, be the worst
thing for them. For example, if you have too few franchisees in a market and
competitors have more units than you have, it could leave you at a disadvantage
in terms of dominating the market for your product or service in your area.
Look for a
franchisor who can communicate a strategy not just for market presence but for
dominating markets; look for a franchisor interested in establishing a
competitive edge and increasing market share. If a franchisor cannot talk about
these issues, it is entirely possible the franchisor is using franchising as a
way to generate franchise fees and royalty revenue rather than to establish a
competitive position in the marketplace.
Evaluate the
marketing/advertising fee. Many franchisors and prospective franchisees
erroneously believe that a low marketing fee is a good thing. In fact, the
marketing fee should be related to the amount of money each franchisee needs to
contribute to support an advertising campaign that will generate enough new and
repeat business for each of them. A 1% advertising fee may look good now, but
when you need 5% from everyone to be competitive, it might not be possible to
convince all franchisees to participate.
Evaluate the effectiveness
of the Franchise Advisory Council. Does the franchisor incorporate the
franchisees' input in the decisions that affect the future direction of the
system? Does the franchisor involve franchisees' input in decisions?
Be sure you can
answer the question "How will I make money in this business?" There
should be a very simple answer to this question. It will not violate earnings
claims restrictions for the franchisor to answer it because you are not asking
"How much money will I make?" You simply want to know how money is
made in the business. Spend as much time as possible speaking to existing
franchisees. Ask them if they would do it again. How long did it take them to
recoup their investment? How much money are they making? Does the operating system
work? Are they provided with good marketing programs? Do the franchisees get
along well with each other and with the franchisor? What are the major problems
with the business? Do they use all of the operating system? Is the franchisor's
ongoing support adequate and helpful? The answers to these questions will help
you make your decision.
Step 3: Evaluate
the Franchisor's Business Plan
The franchisor
should have a business plan for the system that covers at least the length of
the agreement you are being asked to commit to. Ask for the plan for the market
where you are going to locate the operation. Ask for their analysis of the
competition. Ask how many units are being planned for your area and why that
many. Why not more, why not less? Ask how much is going to be spent on
marketing in your area.
Ask to look at the
operations manuals or at least to see an outline of them. This is important
because the operations manuals are your guideline to a successful operation.
You need to feel comfortable that they are complete and clear and meet your
abilities, needs, and goals.
Ask to receive a
full explanation of the initial and subsequent training programs. Ask how
people are trained. Is it classroom or hands-on practice? Are there case
studies and discussions or is it straight lecture?
Ask for a full
explanation of the pre-opening assistance offered by the franchisor. Understand
any help franchisors give for site selection and lease negotiation. Be clear
about what ongoing support the franchisor provides to the franchisees.
By: Bob Gappa
Reference: Franchising.com