9 Point checks to evaluate a franchise business

During your search to find the right franchise, you will likely come across different franchises that seemingly offer the perfect business proposition.

How can you evaluate a franchise business effectively? There are many online directories available that you can use to look for franchise opportunities (see section on resources below).  All franchises are different, their business propositions are different, though they all seeming claim to be easy-to-run and successful.  How can you quickly compare and asses the suitability of these opportunities?   We believe that having a check-list will help you to do this.  A check list is a tool that enables you to measure each franchise business against a set of standards that you set for yourself based on your own requirements. 



But before we get to the check-list, it's worth spending time on performing a self-assessment and consider what you want and where you are.  Once you are clear about running a franchise business is really for you then it'd be much easier to draw up the check-list to evaluation a franchise business.

1. Consider the why's

Before you decide which franchise business is right for you, it's worth taking a couple of steps back and consider whether you are right for running a franchise business.  Do you have a clear idea why you want to own or run a franchise?  What is your motivation?   Maybe it's because you want to be your own boss, or you want to be successful in a new career?  Maybe you want a business model that can be replicated easily and you don't really want to start from scratch in terms of doing all the market research as you want to hit the ground running.  Spend some time looking at the current  franchise trends will help to clarify why you want to run a franchise.

2. Franchise is probably not for you if...

If you want to have autonomy of running the business in any way you like, then franchise is probably not for you.  This is because as a franchisee, you will be buying into a proven system that has been developed by the franchisor.  To become a franchisee, you will be required to sign a contractual agreement with the franchisor and so there is a set of rules and policy that you will adhere to: this includes how you will represent the brand, how you market the business as well as the day to day running of the business.

3. Be passionate about what you do

If you like what you do, then you will enjoy doing it and you will tend to do it well.  What is your passion?  What are your current skillset?  Do you want to run a home-based business? Or do you prefer to be customer facing?  Are you passionate about any one business sector?  Do you prefer a service-based or a product-based business?  Do you like to work in technology or are you more at home with catering?  Are you passionate about being healthy and do you want to transfer that passion into your business?  There are so many different franchises operating in different industry sectors, so narrow it down to a few or even only one that you really care about.  This is going to help you to accept or reject a potential business opportunity quickly when you evaluate a franchise business.

4. Are you financially ready?

Another thing you need to assess is whether you can afford to start up a franchise business.  No matter whether it's a low cost or high cost franchise, you will need to pay a one-off franchise fee to the franchisor.  Then there is the start-up cost.  Before launch of business, you need funds to pay for shop fit, marketing, equipment, stocks etc.  Once you got the business up and running, you need to pay salaries, replenishment of stock, monthly royalty fee to the franchisor etc.

So, look at your financial situation and make sure you can afford to invest in a business venture.  If you don't have enough money in your bank accounts, consider how you can raise the funds.  Can you get a bank loan or financial help from your family and friends?  Knowing your financial limits can help you evaluate a franchise business quickly, in fact, it could well be the one deciding factor for rejecting a franchise.

5. Research can take time

Do not underestimate the time needed for research. A lot of the research can be done online (for example, you can search on an online directory such as Franchise Info which has an easy to use interface but you need to set aside time for this nevertheless.  It's a project: you will need time to speak with the franchisors and pay visits to their existing outlets.   Have you set yourself a deadline for doing this?  It's better to concentrate your effort in a relative space of time than to spread your efforts over a longer period - momentum is the key.  Finding a franchise opportunity is much like finding a job, so you need to commit your time to this.  


Evaluate a Franchise Business

I assume that by now you are sure owning a franchise is what you want to do and that you know where or how to find these franchise opportunities.  You come across a few franchise businesses, but they all look the same to you at this stage.  You need a system that you can use to quickly sort out the ones that you want to take to the next stage of your enquiry and the ones that you want to discard.

Use a 9-Point Check list

Use a 9-Point Check List whenever you need to evaluate a franchise business as this will ensure consistency in your evaluation process.

#1 Industry Sector(s) - is the business in the industry sector(s) that you want to work in? Do you have necessary experience and skillset?  Don't worry if you are new to the business because the franchisor should and will provide the necessary training to you (see Training and Support below).

#2 Products and Service - are you passionate about the products or service the new business provides?  Can you see yourself still in the business 5, 10, 20 years from now?

#3 The Brand - do you like the brand? Its image?  What does the brand represent?  What does it mean to the existing customers? Is it aligned to your own values?

#4 Cost and Starting Capital.  What's the Franchisee Fee?  What's the monthly royalty fee? - can you afford the business?  Is it within your limit?  If not, will you be able to get funding from other sources e.g. Bank Loan, loans from friends and family?

#5 Location - unless the business is home based, you will need to consider the location of the office or the store (if appropriate): will it be easily for you to get to?  If you will also be the manager, then is the location easy to get to daily?  Even if you don't need to be there every day, for example if you plan to hire a manager to look after the daily operations for you, you will probably be required to go into the office or shop every now and then.

#6 Business Culture - do you like how they do their business?  Do you like how they deal with you, their own staff/partners and their customers? Is it consistent with their brand?

#7 Training and Support - what training and support will they provide you?  You might have existing skills and experience that are relevant to the new franchise business for example, management skills will always come in handy.  However, chances are that you have never run a franchise business in the same industry sector, this is why training and support is so vital and every franchise must provide this.  So check out what the training involves and what kind of support you will receive from the franchisor, whether it is for preparation for launch or after the business is up and running.

#8 Proof of success - you need to see numbers, that means cash-flow statement and profit and loss forecast.  For example, you should have a good idea of if you invest X, you will get Y in return and in Time T.  Nothing is guaranteed of course, but you need to be able to play with some numbers and what comes out should seem reasonable to you.  Note that this is also important for putting together a business plan for your own use and also for the application of business loans.

#9 Visit - Arrange to visit one of the franchise outlets.  See how the business is managed.   Do you like what you see?  Are the staff there able to answer your questions?

Opening 2 outlets in 12 months

You will need evidence of success from the franchisor when you evaluate a franchise business.  We have a free case study showing how someone like you managed to find the right franchise business and open 2 outlets in about 12 months!