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Choosing a Franchise

#6 Ways to Evaluate your Franchise Proposal

Experts in the field vouch for a franchise plan that provides a company's vision, financial analysis, and marketing strategy
#6 Ways to Evaluate your Franchise Proposal
Image credit: Shutterstock.com
4 min read

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Kentucky Fried Chicken went the franchise way for the first time way back in 1952. Harland Sanders prepared a document of merely two pages for the first batch of franchisees. A lot has changed since then.

In today’s time, the exceedingly strict Franchise Disclosure Document, offered by a franchiser before any agreement is signed, contains a predetermined listing of more than 20 items. Some run for 75 pages or are even lengthier.

Experts in the field vouch for a franchise plan that provides a company’s vision, financial analysis, and marketing strategy. They feel that such a proposal must specify the financial side of the franchiser as well as the franchisees and illustrate how the parent company and its associates will be able to benefit from it altogether.

Here's how to analyse a franchise business proposal with skilled eyes:

Comprehensive Research

According to Gaurav Tekriwal, Founder President of the Vedic Maths Forum India, while purchasing an existing company or franchise, you need to take steps to appraise the business’s prospects and your aptitude to make it work. “Your research must be comprehensive, taking into account the risks and remunerations of the prospect. Go over the potential and the hazards innate to the deal in order to make an informed choice and boost your chances of success,” he said.

Self-analysis

Tekriwal feels that franchisees fail because of their inability in managing resources. “Before you start delving into the viability of the idea and the market you will be entering, assess your own aptitude, wishes and targets. Do mull over your enthusiasm in embracing risks and the amount of time and energy you’ll need to devote so as to make the project work,” he advised and added, “Also check your financial strength, human resource and selling skills to make sure you have the basic backdrop to make your new venture a success.”

Part of the financial evaluation includes the sum you have in your personal savings to supplement the preliminary investment. Banks often want the entrepreneurs to provide a portion of the investment to demonstrate keenness to take risk. It is advisable to weigh-up the finance accessible from the seller, investors and lenders when estimating the odds of success.

Start with the Basics

There are generally a number of sections in a franchise proposal, including an abstract and a management overview, a marketing strategy, detailed financial projections, and the financial requirements for investing in a franchise. Though it’s simple to go through the initial three sections, which do not have financial projections, they can give away vital information.

N Chandramouli, Founder of Bluebytes, a news research and analysis company, and Trust Research Advisory, a business efficiency advisory, believes it to be important to see if any information on the franchisor’s website varies from those provided in the plan. “If you find any inconsistency, you must enquire to gain insight into how the plan may have evolved. Also make sure most of the components in the franchise’s plan match with your company’s culture and style of operations,” he warned.

Learn More About Management Roles

Then comes the section that details the management roles, including information on the profiles that take up the positions. “Again, you need to do additional research — even just spend a few minutes on Google — to learn more about and verify the backgrounds of everyone involved,” opined Chandramouli.

Most franchise business proposals have a description of the market the franchise would be entering into along with its competition. This section must be a detailed one and proceed faultlessly into the marketing plan. The plan should indicate how many locations per territory a franchisee will be authorized to open.

Market Research

To comprehensively identify with what you’re getting into, carry out a wide market research exercise to verify the viability of the proposal. “In addition to data and figures on trends and existing buying patterns, you must make out who your clientele are, their geographical location and the type of competition that is there in your area,” Angsuman Bandyopadhyay, independent finance consultant and President of Eastern Chamber of Commerce, proposed.

Risk Assessment

In order to assess a business prospect, one must consider the risk factors. A candid assessment of the latent risks intrinsic to the business will go a long way in helping you prepare for probable troubles and come to a decision whether the risks are worth the deal.

“Facts you should mull over in the risk assessment method consist of aspects that could unprofitably influence your business, such as the condition of economy and your contestants desire to be successful,” illustrated Bandyopadhyay.

Don't Choose a Franchise Until You've Talked to People Who Already Own It