7 Steps in Choosing a Franchise

As many franchises enjoy established brand recognition and take pride in having a proven business model, many entrepreneurs opt to open a franchise rather than build a business from scratch. With so many options nowadays, choosing one can be an overwhelming challenge. This article will discuss the steps in choosing a franchise and tackle insider tips before signing on the dotted line.

Step 1: Set Your Budget

Before anything else, it’s crucial to determine your budget. How much is your investment range?

Franchise investments can vary from a few thousand to several million dollars, so your options vary greatly depending on your budget. For starters, most franchises require an upfront franchise fee, which you must factor into your budget.

Aside from the franchise fee, franchisors may also have financial requirements. For instance, some companies want franchisees to have liquid assets or net worth. And one of the most crucial questions – how long will it take to become profitable? 

You may also want to look at available financing options if you don’t have enough liquid assets. Some franchisors offer financing through their parent company, while others have partner lenders that provide business loans to franchisees.

Step 2: Research Franchise Options

Once you’ve set your investment amount, it’s time to consider options within your budget. You can find many resources online and learn about the franchise investment range of almost every company with just a few clicks. 

Aside from online research, you can also attend franchise conferences or expos. Alternatively, you may visit local franchise offices to speak to their consultant.

Though budget is a crucial factor, it’s not the end-all, be-all of franchise research. Here are other aspects you should be looking into:

• Company’s history
• Reputation
• Track record
• Unique value proposition
• Mission, vision, and values

The last aspect may not seem as crucial as other factors, such as financial track record. In the long run, however, it’s vital to choose a business that aligns with your personal values and beliefs. Doing so will help ensure that you’re passionate about the franchise’s purpose and that you’re committed to its success.

Step 3: Read the Franchise Agreement

The franchise agreement is a legal document that outlines the terms and conditions of the franchise relationship. This includes the fees, royalties, and other important details, such as marketing arrangements.

That said, reading this document is a vital part of the steps in choosing a franchise, as it will allow you to have a better grasp of the responsibilities of owning a franchise. It also provides info on what the franchisor will expect from you. These expectations may involve the quality and consistency of products or services and the proper use of trademarks and logos.

The agreement will also state the standards and processes that you’ll need to comply with. This can be closely related to the provisions related to renewal, termination, and transfer of the franchise.

PRO TIP: As the franchise agreement is a legal document, you may want to consult a franchise attorney to help you review and understand it. Doing so can help you grasp legal implications and avoid trouble in the future. 

Step 4: Reach Out to Current and Former Franchisees

Though the franchise agreement offers ample information on opening a business, it’s still a good idea to talk to people who have had the experience of signing that document and operating a franchise.

After all, current and former franchisees can provide valuable insights into the franchisor’s business model. They could also offer to share their experience about training and support and overall relationship with the franchise.

In addition to that, they can give you a good sense of what it’s like to operate the franchise on a day-to-day basis. For instance, they can give you a glimpse into the challenges they have faced as franchisees. They can also give you an idea of the financial aspect of the business, including ongoing costs and actual revenue potential.

It goes without saying that touching base with other franchisees can also give you the level of support you may especially need during the startup phase of your business.

Step 5: Drop By Existing Stores

In addition to reaching out to present franchisees, it’s also vital to drop by existing stores and see the operation in action.

By witnessing what goes on in an actual location, you can have a better grasp of the franchisor’s business model. More importantly, you’ll see with your own eyes how it works in practice beyond what’s written in manuals and agreements.

Observing a franchise’s day-to-day grind can give you invaluable info. For instance, how do customers interact with the brand? How does the franchise handle inquiries, and how do they provide customer services? It will also be a good chance to speak to the staff to find out the challenges that may not be instantly visible to a mere observer.

Step 6: Evaluate the Franchisor’s Training and Support Programs

Chances are, you want to adopt a proven business model to increase your chances of business success. Otherwise, you may have opted to start a new business from scratch – which can be a lot cheaper than a franchise.

That said, one of the most vital steps in choosing a franchise is evaluating its training and support programs. So, how do you do it? You can start by reading the franchise disclosure document (FDD) to see what the training and support programs cover.

You can also attend expos or discovery days, where you can have a chance to ask questions to company representatives. If you want more time to get to know the franchise, you can also schedule a meeting with their representative. During the meeting, you can ask them about the type of training they provide, how often it’s offered, and whether it is hands-on or classroom-style.

Step 7: Analyze the Market Potential

Last but not least, in our steps in choosing a franchise, evaluate the market potential for the business in your local area. Some of the factors to consider are:

• Competition in the market
• Your target audience
• Demand for the products or services offered by the franchise

The franchise being successful in other places doesn’t necessarily mean that it will also work in your chosen location. That said, take the time to consider the demographic of the target audience. You may want to conduct market research or consult with a franchise consultant to help you evaluate the market potential.