It is important that people conduct thorough and full due diligence when considering a franchise proposition. At The Franchising Centre, we evaluate a business using a system we call ‘Five Star Franchising’…
Does the business have a recognised brand and good trading history?
It may not be a nationally recognised brand, but it does need to have a good reputation in the towns in which it operates.
Can the business be duplicated in multiple locations?
Consider if there are any specific factors that make the business successful in its home town that may not exist in other territories. The franchisor must be satisfied that sufficient potential exists for expansion prior to recruiting franchisees in any particular region. The franchisee, as part of their due diligence, must also investigate the potential in their own area, and be sure that there is a market locally for the product or service.
Is the business easily learned, in a reasonable period of time?
Some concepts may need only a few days’ training to prepare franchisees for business. Others may need weeks or months. The important thing here is not so much how many days of training are included, but if this is sufficient for the franchisee to fully understand the concept and operate it. Before buying into any brand, you need to realistically assess if you have the right skills and experience, or if you feel capable of learning how to do what the business does.
What are the profit margins in the product / service?
The franchisor will usually make their profits by taking a percentage of the turnover of their franchisees, sometimes with a fixed monthly fee or mark up on products. You will need to consider if the business can generate sufficient profits for you to make what you want or need from it, after the franchisor has taken their bit.
The ongoing franchisor – franchisee relationship
Finally, a franchisor must have an understanding that their franchisees are business owners in their own right, and trust them with the brand and know-how of the business. They must have a culture of support, and understand that their success will be wholly dependent upon the success of the franchisees. Likewise, the franchisees must understand that they are buying into a proven system, and must follow that system, and not go off and try and re-invent the wheel.
Also worth considering…
…are the ‘interdependency factors’. In other words, what does the business have that would make a prospective franchisee want to join, rather than just setting up on their own in competition? The obvious point here is the knowledge and experience gained to date in operating the business. Most of the lessons will already have been learned, and the mistakes made, making it easier for a franchisee who follows the system to be successful. But what else can the business offer its franchisees? This might include a bespoke CRM or franchise management systems, central call handling, central invoicing, back office facilities and much more.
A well-prepared franchise offer will have many compelling factors to prospective franchisees. It will be tried and tested, and have systems and procedures which are well documented in manuals and training courses.