If you’re looking for a business opportunity, seek out a strong franchise. If you’re wondering what to look for, here’s a checklist of 10 things that indicate a reputable franchisor.
Cooperation during the investigation process
When you’re researching a franchise, you should expect a professional and responsive reaction to your inquiries. This is the “courtship” phase of the relationship. So it doesn’t bode well for your future as a franchisee if you encounter frustration and delayed answers to your requests.
Direct operational training
A high-quality franchise delivers training that covers all the operational knowledge that franchisees need to successfully deliver the product or service. In addition to reviewing information the franchisor provides on this topic, be sure to ask current franchisees how well the training prepared them to run their business.
A strong franchise will also provide more general training about running a business. Examples of topics include employee and payroll issues, theft protection, and vendor relations.
Here’s another area to ask current franchisees about, in addition to reviewing the information the franchisor provides. Do the franchisor’s marketing efforts build and maintain a sufficient customer base to support the business?
Real estate and construction assistance
Many franchises require site selection and build-out according to particular specifications. A strong franchise will provide assistance with steps such as finding a good location, negotiating a lease or purchase agreement, designing a layout, and/or supervising general contractor.
Many franchisees need to finance part of their investment in the franchise business. Though few franchises provide financing directly, some will pave the way for franchisees. This could mean offering a standardized business plan template or even having vendor relationships with prospective lenders.
Minimal litigation history
It’s common for a franchise company, especially one that is well established and has a large number of franchisees, to have a litigation history. But, the shorter this history, the better. Carefully examine the litigation disclosed in the Franchise Disclosure Document (FDD) to gather clues about how the franchisor deals with conflict. A pattern of excessive litigation constitutes a red flag for any franchise opportunity.
Financial strength of the franchise company
Look for a franchise with a strong and profitable financial status. And make sure to examine the audited financial statements in the FDD or have them reviewed by an accountant. That’s the best way to make sure the company is likely to stay in business and meet its commitments to franchisees.
Strong unit economics
Typical franchisees in a reputable franchise system should get a reasonable return for their unit operations within a reasonable period of time. Though this may be challenging to confirm, it’s an essential component of a great franchise.
The overwhelming majority of franchisees in a strong franchise system are happy with their business. They’re satisfied with the training and assistance programs, the marketing efforts, and the financial results they achieve.
When you find a franchise that scores well on each of these items, you have found a reputable franchise. This should put your mind at ease as you move forward in the process.