There isn’t a single franchise model that works for everyone. Entrepreneurs considering opening a franchise should consider their financial resources and the franchiser’s support network before deciding. So, to evaluate a franchise opportunity like a boss, we’ve got six solid strategies to guide you for maximum return on investment. Below we answer six important questions helping you evaluate a successful franchise opportunity.
1. How to Evaluate Cost for a New Franchise Opportunity?
Every franchisor requests a down payment in advance. Setting up a franchise can cost anywhere from a few hundred dollars to several hundred thousand. The franchise fee should ideally be self-funded (though some franchisers offer financing options). Either way, you should be prepared to put down a minimum of $10,000 on the table right away.
2. What Determines Profitability of a Franchise?
Knowing whether or not a business investment is worthwhile is critical when evaluating potential investments. There is no exact science to figure out whether a franchise is profitable or not. A few factors to consider include an evaluation of the franchise unit growth location-wise, the success rate of each of these units, and the franchiser’s financial statements, wherein the franchise disclosure document reflects the average sales per unit.
3. What kind of Franchise Support do Franchisors Provide?
Before you decide to invest in a new franchise, ensure your franchiser has a support system to offer you to make your investment a success. Many franchises fly their partners to their training center and train them well on what worked for them already. Your franchiser will provide you access to a resource center with seminars and events. You have to be considerate too in understanding how much to expect if your franchiser is not like McDonald’s; having a low but reasonable expectation is good.
4. How Long is an Average Franchise Term?
Having a franchise means making a long-term commitment—you can’t open a store for a year and then walk away. For instance, McDonald’s has a 20-year franchise term. Make certain you’re ready to stay for an extended period without pursuing any other time-consuming obligations. Choose a brand whose franchises are easier to sell if you think you’ll want to leave in less than ten years.
5. How to Decide Location for a New Franchise?
It is not uncommon for franchisers to aim to expand their business in a specific region. For example, opening a new location only a few miles away from an existing one or in an area with no demand would be unprofitable. Ascertain if the prospective franchiser wishes to open a branch in your area before proceeding. If not, you’ll have to decide if you’re ready to move.
6. What is the Best Strategy in Selecting a Franchise Brand?
To evaluate a franchise opportunity like a boss, you must consider franchise brand awareness and year-to-year growth. These two features will determine whether or not a prospective brand’s franchise operation is financially viable. Going with a big, well-known brand may not be the best option all the time due to the high start-up costs. An easier entry point could be a smaller franchiser, as long as its revenue is increasing.