7 Questions That Help You Compare Franchise Opportunities
by Arina Smith Business Development 07 November 2017
In the U.S. there are endless business opportunities. But franchising stands out as one of today’s most popular business ventures for eager entrepreneurs. The International Franchise Association’s 2017 report notes that the franchising industry is expected to grow for the seventh year.
Starting a franchise may be easier than starting a company from scratch, but success still depends on your business savvy. Location is always going to be critical, but the franchise you choose is easily the most important decision you have to make.
If you’re considering your franchise opportunities, ask yourself these seven questions to find the best possible partnership.
Is There Demand in the Area?
There are advantages to starting a franchise. The biggest advantage is having a built in model that’s proven to be highly successful. However, that doesn’t mean there’s demand for the business in your area. Like any business, you must carefully assess the local supply and demand to gauge whether you’ll be able to attract a customer base.
Do You Know the Business/Industry?
Even though you’ll have a blueprint for operating the business, it’s always easier when you have firsthand experience working within the industry. It’s even better if you have worked for the franchise company in the past as a location manager. Many people make the transition to franchise owner after working for the company as a salaried employee.
Is the Franchise Business Something You’d Enjoy Owning?
Enjoying the industry you work in is also important. As the owner of the franchise location you’ll likely be involved in the day-to-day operations to some degree. The point of owning a business is to increase your job satisfaction and quality of life. If it’s a business that will cause a lot of stress and anxiety, you may want to consider other franchise options.
Happy owners increase the odds of having content managers and employees. Recent research has shown happy employees are more productive employees. Choosing a franchise business you’ll enjoy running is a win-win situation all around.
Which Franchises Have the Best Growth Potential?
The top priority for any business is profitability. The only way to increase profitability is to grow revenue.
The International Franchise Association’s report also found that overall the gross domestic product (GDP) from franchises is set to increase by more than 5% this year. Of course, each industry has its own unique projections. The IFA is an excellent resource for determining which franchises have the best growth potential. Right now the IFA has pegged personal services as the fastest growing franchises industry.
Also, carefully look over the materials supplied by the franchise parent company. The Federal Trade Commission’s Franchise Rule dictates that a franchise must supply a prospective buyer with 23 items of information. Among that information is data on sales and financial viability for franchisors.
What Are the Required Starting Capital and Other Costs?
All companies will specify the minimum amount required to buy into a franchise. This is the barrier of entry for many entrepreneurs. Often, you’ll have to have $50,000+ in to purchase a new franchise location. However, each franchise sets their own initial buy-in rate, and it’s possible to open a franchise without any starting capital.
But keep in mind the starting capital is just one operating expense. You may also have to pay additional franchising fees, such as an annual fee for using the brand name and imagery. Again, all of this information should be disclosed under the FTC Franchise Rule.
What Are the Day-to-Day Requirements?
As noted above, you’ll be a key player in operating the franchise business. It helps to have a firm understanding of the day-to-day requirements for operation. Each franchise is unique in how their systems operate. Some may require a lot of oversight on the part of the owner while others require minimal day-to-day management.
The information provided under the FTC Franchise Rule also covers the franchisee/franchisor system. This will give you a better idea of your responsibilities and what can be expected on a daily basis.
Can I Secure a Viable Business Location?
Like real estate, brick-and-mortar business is all about location, location, location. No matter how successful a franchise is if it’s in the wrong location you’re making profitability much more difficult. When a franchise opportunity presents itself one of the first things to ask yourself is whether or not you can find an ideal location to set up shop.
An ideal location will be wherever your target market is located. You’ll also need to consider visibility, parking and special requirements for business operation