Rush on Business

Evaluating a Franchise Opportunity

In meeting after meeting with prospective franchisees I am asked what I would look for in a franchise opportunity. It's not an easy question. But trust me when I say that all franchise opportunities are NOT created the same.

What separates the good franchising opportunities from the bad franchising opportunities in my experience? Here are my top four reasons:

  1. The Brand Must be Recognizable. Talk to 10 of your friends. If they've never heard of the franchise you may want to reconsider the opportunity. The upfront costs of franchising are often greater than starting your own business because of the associated franchise and other upfront fees. If the brand isn't recognizable, can you really justify paying the franchise fees or are you better off starting your own independent business?
  2. The Franchise Has a Fantastic System. Are the operational processes the franchisor has in place so special that you couldn't duplicate it yourself or perhaps it would take you years to develop?  I say a franchise better have those fantastic operational processes in place or it probably isn't worth buying.
  3. Unique Concept or Product. Does the franchisor have an unique concept or product that you are unable to duplicate yourself or perhaps it would be to expensive to develop on your own? 
  4. Protected Intellectual Property. Does the franchisor possess protected intellectual property that would make it difficult or impossible to start the business on your own? If so, then franchising may be your only alternative to break into a particular market.

Time and time again I see people invest their life savings into franchising.  Some of these people achieve great results while others do not. There is no validity to the claim that franchise operations fail less than independent business opportunities. Be sure to examine franchise opportunities carefully and conduct your due diligence. The due diligence should include extensive interviews with the franchisor's management team and as many franchisees as possible. Get advice from a franchise lawyer, accountant and a banker regarding the opportunity. Educate yourself and be willing to walk away from the negotiations to get the best deal possible from the franchisor.

In conclusion, there are many other issues to consider when evaluating franchise opportunities but if the franchise opportunity doesn't have one of the four things above, it's been my experience you can probably just move on to the next opportunity.

 

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Comments (1) Read through and enter the discussion with the form at the end
Sara@FranchiseBuyer - December 19, 2012 4:48 AM

Great insights, Rush! It's really important to carefully evaluate the franchise business that you are planning to invest to before jumping on the next step. This is a great deal to all who's planning to start up their own business.

Rush Nigut l Brick Gentry, P.C. l 6701 Westown Parkway l Suite 100 l West Des Moines, Iowa 50266

Phone: (515) 274-1450 l Fax: (515) 274-1488