The last thing you want to do as a prospective franchisee is to waste your time evaluating limited franchise opportunities. Even worse would be to invest in a franchise system that isn’t investment worthy.
Here is a quick sniff test to evaluate whether a franchise system is worthy of your investigation and potential investment.
Sniff this
The Story. How and why did the company get where it is, today. What is the value proposition for customers, vendors, franchisees, employees, and investors? Check out customer evaluations of the product and service. A complete understanding of who you will serve will help you to evaluate the opportunity’s value. The more experience the franchisor has in the business, the more likely that franchisor understands how to succeed in the business. Look at the franchisees, are they happy and expanding?
The Franchise Business Model is crucial for the prospective franchisee to understand fully. What value do the franchisees, franchisor, vendors, employees, investors and customers gain from the enterprise? How does everyone benefit financially from the operations? The franchise business model may include many different aspects of the business, such as how it makes, brands, distributes, prices, markets, or advertises its products and services. The details of the franchise business model must provide a clear picture of the financial metrics of unit operations and profits. Look at the Financial disclosure in Item #19 of the Franchise Disclosure Document for details on financial performance. If there is no detailed financial disclosure, move on. Don’t spend any more time investigating that franchise opportunity.
The People. People make and move the organization. Research the officers and management of the franchise system along with those who will provide support for your business. You are looking for people that have a lot of experience in the franchise business model you are considering. The franchisees play an important role in the success of a franchise system and will help you evaluate the culture of the franchise system. Look for stability and experience, as business is competitive and you want the best team on your side.
The Competition. As simple as it sounds, competition is the key to short-term success, while innovation is the key to long-term success of the enterprise. Does the franchise you are considering differentiate from the status quo? Or do the competitors do a better job by offering products or services that are more innovative or competitive regarding quality, image or price? If you understand the competitors, you will be able to predict how the franchise will perform head to head. This insight is precious in the evaluation of the franchise opportunity.
After the Quick Sniff Test, if you are satisfied that the franchise opportunity you are looking at provides you with a strong value proposition. It’s now time to dig and do some serious due diligence to substantiate your potential investment.
At Franchise Perfection we help prospective franchisees evaluate franchise opportunities.
We provide due diligence service to assess the franchise opportunity you are considering by taking an in-depth review of the Franchise Disclosure Document. The cost of this service is $500.00. You will receive a detailed report detailing the good, bad and the underbelly associated with the franchise opportunity. We are not attorneys and don’t profess to offer legal advice, our experience is in franchising and business. The Franchise Perfection Franchise Business Model Review digs into the business model and helps you determine the value of the opportunity. We do not review the franchise agreement directly other than the terms and conditions disclosed in the Franchise Disclosure Document.
For more information contact Jim Coen at jim@franchiseperfection.com or call 617-469-3002.
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