As much as the franchise business owner may be choosing you… you are also choosing them. It is therefore necessary to evaluate the franchisor and examine their track record closely. It is now required by law that a franchisor provide you with a Disclosure Document. This is usually after you have signed a confidentiality agreement as it gives a number of insights into the franchisor’s business. The answers to the following questions and more should be provided in that document:
- How long has the business been in operation?
- How long has the business been franchising?
- How many franchised outlets are there?
- How many company owned stores?
- What are their expansion plans?
- What is the failure rate?
- How many closures have there been in the last 36 months and why?
- How many franchisees exited voluntarily?
- Are they members of FASA?
- What is the head office infrastructure and the level of support like?
- Is the franchisor a supplier of product, exclusive or not?
- Does the franchisor assist with site selection and lease negotiation?
- Will the franchisor assist with design, shop fitting and opening?
- Does the franchisor assist with obtaining finance?
- Is there initial training provided on operational and business management skills?
- Has the franchisor provided you with financial projections?
- Is the franchise package in place?
a. Disclosure Document
b. Franchise Agreement
c. Operations Manual
- What national advertising and marketing support will be received?
- Is there field support available and how regularly?
- What is the culture of the franchisor?
As much as you need to evaluate the franchisor it is also important that you take responsibility for evaluating and investigating the market. It is questions such as the following that you should be asking:
- Is the business sector healthy or in decline?
- What is the product or service potential?
- Has a sufficient market demand been established?
- Who are the existing competitors?
- What percentage market share does the franchisor have?
- What is the value of the franchisor’s brand?
- Does the franchisor control the marketing?
- Is there a marketing fund?
- Do I need local area marketing?
If the investment you are making is linked to a store or an outlet, then ensure that a proper site evaluation is conducted. You will need to determine the following: the viability of the location; demographics of the area; type of site; position of site; visibility and surrounding infrastructure. It is vital to determine if the parking is sufficient and accessible as well as the foot traffic. Ensure you are aware of the competition in the area as well as the success of existing and previous businesses on this site. The location must also be zoned for business and allow adequate signage visibility.