10 Signs of a Great Franchise
More than anything else, what most prospective franchisees want to be sure of is that the franchise you are considering is a good all-around opportunity. We can use other words like "great" or "solid" or "reputable" to illustrate what you're looking for in a franchise, but the bottom line is you want to know that everything needed for success exists and that there are no major flaws with the franchise.
The following checklist for determining whether a franchise is solid is subjective, but it's based on many years of experience. If you want to know that you're looking at a solid franchise opportunity, make sure to check the following factors carefully:
1. Responsiveness during the investigation process
It sounds almost trite, but you want to see a professional and responsive reaction to your research into the franchise. This is the "courtship" phase of the relationship, and it doesn't bode well for your future as a franchisee if the phase is marked by frustration and delayed answers to your requests.
2. Direct operational training
You need to make sure that the franchisor's training programs cover all the operational knowledge you'll need to successfully deliver their product or service if you become a franchisee. In addition to reviewing the information the franchisor provides about their training programs, make sure to ask the existing franchisees how well they were actually prepared to conduct the business based on the training they received.
3. Other training
In addition to direct operational training, you'll need to learn many general things about running any business. Employee and payroll issues, theft protection and the form of corporate entity you will use are just a few examples of the types of subjects you also want to make sure are covered in training so you are completely prepared to run your new business.
4. Marketing programs
You need to make sure the marketing programs of the franchise system get the job done in terms of building and maintaining a sufficient customer base to support the business. This is another very important area where you'll want confirmation from existing franchisees in addition to reviewing information from the franchise company.
5. Real estate and construction assistance
Many franchises require that a location be selected and built out according to specifications from the franchisor. Since most franchisees have little or no experience finding good locations, negotiating leases or purchase agreements, designing layouts, supervising general contractors or anything else associated with this process, you need to make sure such assistance is available from the franchise company.
6. Financing assistance
Many franchisees need to finance part of their investment in the franchise business. Though it is quite rare for a franchise company to provide financing directly, a solid franchisor will have "paved the way" for the franchisees. This might be in the form of standardized business plan templates made available for the franchisee or even vendor relationships with prospective lenders that are set up in advance for franchisees.
7. Litigation history
Though it is common for a franchise company, especially if they are well established with lots of franchisees, to have some litigation history, this is something you would like to see minimized. Carefully examine the litigation disclosures in the Uniform Franchise Offering Circular to determine clues about how the franchise company deals with conflict. A pattern of excessive litigation is a red flag for any franchise opportunity.
8. Financial strength of the franchise company
It sounds simple, but a solid franchise company has a strong and profitable financial status. Make sure you examine the audited financial statements in the UFOC (or have them reviewed by an accountant if you're not experienced in this area) to make sure the company is likely to stay in business and meet its commitments to the franchisees.
9. Financial strength of the unit operations
A good franchise company has an opportunity available that allows a typical franchisee to earn a reasonable return from their unit operations within a reasonable period of time. Though this is sometimes difficult or challenging to confirm, it is an essential component of finding a solid franchise company. Spend whatever amount of time and effort is necessary to confirm the unit economics before becoming a franchisee of any company.
10. The attitude of the existing franchisees
This is the most important indicator of a solid franchise company. In a good company, an overwhelming majority of the franchisees are happy with their business. They are satisfied with the training and assistance programs, the marketing efforts, the financial results they are achieving and the relationship they have with the people in the company.
When you find a franchise that scores well on each of these 10 indicators, you have indeed found a solid franchise. Assuming that the opportunity and the franchisee role characteristics fit with what you are looking for, you should be able to achieve success as a franchisee with such a company.