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Two Simple Tips for Choosing the Right Franchise
Posted by Ed Teixeira
When looking to purchase a franchise, franchisors will present a positive and favorable portrait of the franchise, which is only natural. You may need to dig deeply to find the real franchisor.There are various steps that one should take when validating a franchise, however, there are two items that will reveal more about the franchise opportunity than any other.
These two items can provide a wealth of knowledge about the franchisor, the franchise program and the success of the franchisees. If you could ask only two questions, these are the ones you'd want to ask.
- Franchisor Responsiveness is an item on every list of questions that a prospective franchisee should seek anwsers to. Yet I don't believe it receives enough attention.This particular area will provide a preview into just how committed and devoted the franchisor leadership and staff is to their franchisees. You can get feedback from existing and former franchisees. In addition, you need to ask the franchisor staff how they respond to various situations. You want to know from the franchisees how long it has taken to get a response to a problem. Consider the various issues that the franchisee can contact the franchisor about: training assistance, reporting a new and aggressive competitor in your market, a marketing idea, supplier issue, request for a field visit, financial issue and more. You'll want to know if the franchisee received a response in a timely manner and did the response satisfy the franchisee?
- Franchisee Profitability requires you to speak with enough franchisees so that you can identify if the franchise met their financial expectations. All of the questions and due diligence you perform is for naught if the franchisees are not profitable. This particular process may take time and persistence on your part, but the results will be well worth your efforts. You want to find out if the franchisees are profitable, how long it took them to reach break-even, how long to recover their investment and is their work schedule balanced by their franchise earnings ( some franchisees work long hours for little or no profit). Make sure you do your own break-even analysis and use it to measure the feedback you receive from the franchisees. A key question is to find out how accurate the Item 7 investment schedule in the Franchise Disclosure Document was compared to the actual experience of the franchisees?
Performing appropriate due diligence on a franchise opportunity takes time and effort. Obtaining information pertaining to franchisor responsiveness and franchisee profitability will reveal a great deal about the franchise you're considering.
Posted on February 16, 2011 at 11:22 AM
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