When deliberating between different franchises, whether it’s a virtual office franchise, T-shirt franchise, or delivery franchise, it’s fairly easy to get lost in the details, especially when all of these franchises look good at first glance. However, this doesn’t necessarily mean that your investment would give you enough income to pay yourself and your ongoing franchisee fees. With that said, here are some key things you might not think to ask when assessing a franchise:
Aside from the initial franchise fee, you also have to budget for rent, for the utilities for the location, your initial inventory, your insurance, and your various licenses. But when evaluating a franchise, you also need to consider the start or initial lag. Basically, it usually takes businesses a couple of months to one year to cement their business in the community and actually rake in profits. Thus, you need to be prepared to fund inventory and payroll during this time.
Just as knowing the future finances of a franchise opportunity is crucial, it’s likewise vital that you know about the financial history of the franchisor. When you receive the franchise disclosure document (FDD), make sure to read and understand it thoroughly to accurately gauge whether the franchise opportunity is a risky move for you. Check how the franchisor makes profit, either from selling franchises or royalties, and pay close attention to growth patterns, focusing on consistency and plans on continuing momentum.
Marketing and Markets
Determine how the business plan of the franchisor discusses the competition, markets, and marketing costs. Some franchisors could mainly depend on their reputation, while others rely significantly on their services and products. Primarily, check the marketing plan and how it works. See if it’s really working. Likewise, check out the franchisor’s target market and close competitors. Would you be competing with other businesses that offer similar or the exact same products or perhaps other franchisees near your chosen location?
Remember, franchise business plans and brochures are strategically designed to entice you to invest in the franchise. As a responsible businessperson, you need to know how to read between the lines. Do your research before you make a commitment.