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A Simple Way to Evaluate a Franchise Opportunity

by Ed Teixeira

These simple guidelines can be used to begin an evaluation of an existing franchise opportunity. These guidelines also represent the foundation for building a franchise concept from an independent business. Follow this list to find important questions and attributes that you should consider when you search for a particular franchise. When you’re finished, ask yourself if the franchise program passes the test.

Business Traits-the franchise must have a certain uniqueness whereby it’s different in terms of products, services, markets, investment level.
Operational Simplicity- a franchisee should be able to learn how to operate the franchise in a fairly short period of time.
Adaptability and Demand- the franchise concept should work well and adapt to various locations and markets, with a strong demand for the products and services
ROI- there needs to be a good return on investment and profit after the initial franchise, advertising fees and operating expenses.
Strong Management Team- the franchisor needs to be represented by a strong management team. It takes more than a few people to lead a successful franchise operation.
Business Credibility- the franchisor should have a good track record and successful history.
The Business must be Teachable- there needs to be good systems and procedures in place that are well documented.

FRANCHISE NEGATIVES

These are possible “red flags” that you should be aware of. If any of these arise be sure to follow up and confirm whether or not they are problematic.

The product or service has a short life span. It can be a fad or short-lived concept.
The gross margins are too low and high revenues are needed to support the franchise royalty and other fees.
The skills to operate the franchise are complex and/or take a significant period of time to teach and learn.
The franchise relies on repeat customers and special service. Professional services like legal and accounting are examples.
The franchise demands unique market characteristics which are not easily found. As such, the business location has very special requirements.
The franchise has very complex and detailed audit requirements.
The franchise and similar franchises are failing or marginally successful.

When looking for the right franchise opportunity it’s important to determine if the franchise can pass a preliminary test. Using the approach outlined in this article can provide a simple and productive method to identify your most desirable franchise opportunities.