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Researching a Franchise Opportunity

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When considering a franchise opportunity itís important that individuals perform the proper research. This should include identifying how the franchisor qualifies and selects new franchisees.

The purchase of a franchise represents a major decision for the majority of franchise candidates. Deciding to purchase and operate a franchise, means a major life style change for most people. In addition, the capital investment required for a franchise can carry considerable risk.  For these reasons itís important that individuals considering a franchise opportunity perform the proper research.

The key steps for researching a franchise should include the following:

  • Gain a basic understanding of franchising. The importance of this knowledge cannot be underestimated. There is ample information available on the Internet and from various sources including the FTC and IFA.
  • Identify the amount of capital necessary to invest in the franchises that interest you.  Donít rely on the franchise marketing literature but instead speak to some existing franchisees and carefully review the Franchise Disclosure Document and the investment schedule.
  • Match your business and personal skills to the requirements of the franchise. Do an objective assessment of your strengths and weaknesses. Your best choice for a franchise is one that closely matches your financial resources, business skills and personal preferences pertaining to lifestyle and interest. 
  • Utilize the advice and guidance of professionals. Be sure to engage the services of a franchise attorney and financial professional once youíre ready to move forward. These individuals have the knowledge and experience to provide the assistance you require.
  • Objectively evaluate the credentials and performance of the franchise program. Donít be impressed by the glitz and glamour of a franchise program. Focus on the operational aspects of the franchise and especially financial performance by speaking to existing franchisees.

In addition to these key items, there are other areas that ought to be considered, but are often neglected.

The time, attention and effort a franchisor places on qualifying and selecting its franchisees is a way to separate the quality franchisors from the average or weak ones.

An important component of your franchise research project should include requesting a profile of an ideal franchise candidate from the franchisor. This should be done at the beginning of the franchise research process. The objective is to confirm that the franchisor has a profile of their ideal franchisee and a method for measuring their qualifications.

An example of a franchise qualification program is represented by i9 Sports a childrenís sports franchise, which looks for mid-career professionals, with a slight nod towards those in sales and middle-management positions.  They use a behavioral profiling tool and look for candidates with sufficient drive, an ability to work at a fast pace, multi-task, and follow a system.  The ability to relate to people is critical, coupled with basic business acumen constitute some of the necessary tools for success. Before a visit to the i9 Sports corporate office, potential franchisees view two webinars, complete an application, are background checked, do a secret shopping exercise which compares i9 Sports franchise and its program to the local competition and they are further expected to review the FDD, talk to existing franchisees and assemble bank and tax records for review by the franchisor. They also work proactively with candidates seeking outside funding, working with qualified candidates to create a business plan and cash flow planner, while using the projections stated in Item 19 of the i9 Sports FDD.

The system utilized by i9 Sports to qualify and select its franchisees is an example of the approach utilized by successful franchisors that enhances the success of its franchisees.

When researching a franchise opportunity, individuals need to follow a specific format and review certain components of the franchise operation. Understanding how the franchisor profiles and qualifies franchise candidates is an additional aspect of the research process that should be evaluated..

© 2013 FranchiseKnowHow, LLC

Ed Teixeira is the author of The Franchise Buyers Manual and a 35 year veteran of the franchise industry having served as a senior executive for several franchise firms. Ed was also a franchisee of a multi-million dollar home healthcare franchise. He is the founder of FranchiseKnowHow, a franchise consulting firm.

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