1. The market
What is the current condition of the market for the franchise you are interested in purchasing? Is it a growing market? How is it likely to be affected by an economic downturn or other events beyond your control?
2. Growth opportunities
Look at the product or service and how it could be scaled to increase profitability. Will you be able to expand the range of products or services to increase your revenue streams? Are there processes that you will be able to automate or outsource so you can scale up the business? Are there restrictions in the franchise agreement that may prevent this?
3. Customer retention
Does the business attract repeat customers? Customer loyalty will make it easier to grow the business, as you can spend more time focusing on acquisition than retention. A good sign of customer loyalty is positive reviews from customers and strong brand awareness.
Consider the innovation of the franchisor. Is the franchisor always looking for new ways to improve its systems and procedures? Do they often expand their range of products and/or services to meet the evolving needs of the market? Are they providing incentives for new customers? Are they keeping up with the times?
It will be immediately clear if a franchise system is not innovative, as their systems will be clunky, outdated, and difficult to use.
5. Company history
Are you buying a completely new franchise, or are you buying an existing one. If so, does the existing franchise have a proven sales record? And what is the culture of that franchisor or head office like? Is the franchisor team experienced, stable and supportive?
You will need to assess how much money is needed to get the franchise business started. Some franchise businesses will require a large initial investment in things such as business premises, equipment, stock and more. Others may have minimal startup costs.
Where your business is located can be vital to its success. What is the competition like in the area that you will be trading in? If there are too many competitors, you may find it difficult to attract customers. You also need to make sure the product or service you are offering is sought after in your area.
Owning a franchise business comes with certain restrictions set forth in the Franchise Agreement. These restrictions ensure the franchise adheres to a strong brand identity, and that your operations will not impact other franchisees. The restrictions may affect how you can advertise, the territory in which you are allowed to operate your business, and more. Make sure you are well aware of all the restrictions in your Franchise Agreement and how they will affect your business.
9. Support and training
or is offering in the way of support and training. Make sure you are confident that you will be able to successfully run your business according to the procedures and systems required by the franchise. Ensure training is available for anything you are unsure about. A great way to find out about this is to speak to an owner of another franchise and hear their experience.
10. Your suitability
A franchise can be an expensive and time-intensive undertaking, with franchise agreements generally lasting anywhere from 5 to 15 years. It will be difficult to back out once you have signed the agreement, so make sure you consider the commitment you are making for yourself. Are you personally invested in the product or service you will be selling? Are your skills and personality suited to running this franchise business? Do you think you will fit in with the franchise culture? Can you see yourself in this job for many years to come?
11. Exit strategy
Sometimes life throws a curveball, so it’s always good to have a backup plan. Look at how you can exit the business early if something happens to you and you have no other choice. This may involve selling or transferring the business, and there will be costs involved, so ensure you take those into account.