Evaluating a franchise opportunity needs to be done carefully. But there are plenty of steps you can take to rule some options out. To do this, you will need:
- A copy of the FDD (Franchise Disclosure Document) for all the franchise opportunities you want to evaluate
- An unbiased starting position
- Honesty about your own skills
One quick point first: this initial assessment of your options is a good start. But before buying a franchise you should always get legal and financial advice.
Now that’s been said, let’s begin:
1) Check their finances
This should be fairly easy with well-established franchises. You should have access to at least two years of audited financial statements. Check for things like:
- Steady, expanding revenues (showing they have franchisees which continue to grow).
- That you can see figures for new franchisees (net franchisee growth).
- That initial franchisee fees don’t make up too much of their revenue
2) Confirm how you’ll make money
Which products and services will you be able to offer with this opportunity? These are your revenue streams. Are you going to have enough variety to keep that money coming in? Is this a company in a stable, expanding or saturated industry?
In general, the more products and services you will be able to offer, the better. For example, at MBE Australia you have 3 streams of income.
3) Discover how much it will cost
What’s the cost structure of the franchise opportunity you’re trying to evaluate? Starting up and growing your business will lead to costs including:
- Advertising fund contributions
- Staff wages
- Property rent and utilities
- Product costs
These cost of sales are always outlined in a Profit and Loss statement.
4) Work out what’s in it for you
Once you know the revenue and costs as a franchise owner, you should be able to get a good sense of your owner’s earnings (as it’s sometimes termed).
5) Evaluate your skills, how they apply and training you receive
Sure, you’ve got the drive to succeed. But do you have skills relevant to any of the franchise opportunities you’re considering? Your own business experience is going to have a huge effect on your success.
If you know you’re lacking in one or two key areas, make sure that your franchisor offers relevant training. If you know that you actively don’t like or aren’t good at, say, preparing food… perhaps that restaurant franchise isn’t for you.
6) Find out how helpful your franchisor is
Your drive to succeed will be important. The profitability of the opportunity is, of course, key. But the assistance your franchisor provides helping you set up and grow your new business is more important than almost anything else. How do you know how supportive they’re going to be though?
MBE Australia offers eight weeks of set-up training, an opening launch programme with a hit list (database). Thereafter, ongoing training is through quarterly centre visits by the operations manager, state-based quarterly meetings, annual national conference, monthly web-based training and 24-hour access to the MBE training academy portal.
7) Have a one-on-one chat
If a franchise is proud of what it does, it won’t have any problems with you speaking with one of its existing franchisees.
For you, this is a golden opportunity to ask not only some of the questions listed here but also anything else which springs to mind. In addition, it’s important to understand the culture of the business and see whether it fits with your values.
An existing franchisee will know about their annual sales, the business development process they followed and how long it took, the Key Performance Indicators of the industry and how much help they got from their franchisor. They’re in a better position than anyone else to help you evaluate any franchise opportunity.
Part of MBE Australia franchisee recruitment process is to organise a centre visit with one of their franchisees so make sure you go out and find one. And ask.