EVALUATE A FRANCHISE

You may have heard it said that when you are about to start a business of your own, a franchise is a safer option. Indeed, it is, but this does not mean that you should walk into such a deal with blinkers on.

How do I get started?

Start by taking a good look at yourself. The first question you need to ask yourself is: Will I be happy as an entrepreneur? Only once you have established that in principle should you move on to the franchise scenario. Keep in mind that although the franchisor will smooth the way for you, at the end of the day, responsibility for the unit’s success or otherwise is yours.  

At that point, you might also want to analyse your motives for taking this step. Satisfy yourself that a franchise can give you what you are really striving for.  

Are you ready now to begin negotiations with a franchisor in earnest?

Well, not quite. Although the franchisors we have listed on this web site offer viable franchise opportunities, you still need to check them out. Remember the “square peg in a round hole” syndrome?

No matter how good an opportunity you may come across, unless it matches your likes, dislikes, abilities and resources, success may well elude you. Former franchisees who left a franchise in distress and had to watch from the sidelines as their successors turned them around will be the first to confirm this.

Choosing The Right Sector...

People often ask us: “tell me, which franchise is the best investment?” There is no such thing as a “best franchise”, otherwise, everyone would invest in it and there would be no opportunities left. You need to choose something that appears viable, yes, but you also need to be sure that you can enjoy working in the sector for a very long time. This requires a little more self-examination:

• What do I like doing?
• Do I have the right personality and skills? (You might want to ask members of your family and trusted friends for their opinion as well.)
• Can this be turned into a viable business proposition?
• Does a franchise in this field exist?
• Does it appear to be within my target investment level?
• Are opportunities available in an area where I want to live/work?

How many franchisors should I apply to ?

Once you know which sectors interest you, the time has come to contact the franchisors that are active in this sector. Request initial information from as many companies as possible, then narrow down your search to focus on two or three companies. To conduct a meaningful investigation, you will need to explore more than one company in the same sector in great detail. You may have sent an initial request for information to 10 or 15 companies, but you can't do an in-depth evaluation of all of them, nor do you need to. In most cases, you can tell early on whether you are hooked or not.  

By answering the following basic questions about each franchise that holds immediate appeal, you will be able to pinpoint two or three “serious” possibilities and continue negotiations with them. Ask questions along the following lines:

• Would I enjoy making a career out of operating this franchise, day in, day out, for at least 5-7 years, possibly forever?
• Do I have the skills - or am I willing and able to learn them - to operate this business? Some franchises are so-called management franchises. This means that you will manage the business while salaried staff will carry out the actual service. Fair enough, but you should still be able to do the job yourself if need be. This is simply good business practice, for example:
• how will you prepare quotations unless you know what the job entails?
• how will you judge whether a worker’s productivity is acceptable or sub-standard? (Yes, the franchisor will provide you with guidelines but you need to know.)
• Do I have the resources to invest in and operate this franchise? (remember the vital issue of working capital – money you need to plough into the business until its cash flow is strong enough.)
• Does it seem as if the returns of your investment in this franchise might be in line with your financial objectives? (If you had a high powered corporate job, your business might not be able to continue supporting the lifestyle you have become accustomed to – at least not during the early years. Can you – and your family – accept that?)
• Does the franchisor appear reputable, forthcoming, and the type of company with which you would enjoy a partnership?
• Does the franchisor have a disclosure document? (They won’t give it to you at this stage, all you can ask for is that they confirm that one will be available once you have become a qualified prospect in the franchisor’s eyes.)
• How would the franchisor feel about you working in a company-owned store for a few days? This would give you a chance “to taste it” and the franchisor an opportunity to get to know you better.

Checking off the above points will help you decide which franchisors you would like to know more about. Should closer examination of these franchisors reveal that the opportunity is not quite what you expected, move on to another three.

Eventually, you will find your ideal match.

In-depth examination

As you move ahead with your investigation, don't rely solely on the information these franchisors provide. The key is to investigate every possible angle. Remember: there is no such thing as a stupid question. Indeed, you should feel free to ask, ask and ask again. It’s your right, and a bona fide franchisor will respect you for exercising it!

Evaluate the market/product 

One thing eager would-be franchisees often overlook is to do an investigation of the market the network serves. In theory, this is the franchisor’s job but from where you sit, this decision is too important to take a passive role. As a franchisee, you will be promoting and selling the product or service for a long time to come. Should you find out at a later stage that it lacks market appeal, you cannot change course at a whim, or turn the product or service into something else. Your franchise agreement will be very specific on this point. That’s how it should be, but you need to make sure that the network’s product offering holds long-term appeal within your territory. Moreover, the franchisor must appear to be willing and able to continue building the brand and remain at the forefront of developments in the target market.

At this stage, the time is right to contact the franchisor and set the formal evaluation process in motion. If you haven’t done so already, ask for an application form and complete it in full. Do not rush this step, and above all, do not be offended by the nature and amount of questions the franchisor asks. This provides some assurance to you that the franchisor is not just out to collect upfront fees but is careful whom he admits into the network. This proves that the franchisor is interested in building mutually profitable relationships with franchisees.

What will happen at the interview? 

Having received your application, the majority of franchise systems will do a thorough background check. The typical screening process will analyse your experience, general background, character and financial resources. This is likely to include questions about your educational history, previous employment and self-employment. You will also be asked to supply the names of several credit and personal references. 

Many franchisors also ask questions designed to uncover your motivation for wishing to join their network. At the same time, they try to find out more about your personal characteristics. You can expect to be asked a series of questions along the following lines:

• Why are you interested in becoming associated with us?
• Why do you think you would be successful in our franchise?
• What do you think you could contribute to the growth of our brand?
• What are your goals for the next 3 – 10 years?  

In addition to being asked questions of this nature, you may even be asked to undergo formal psychometric testing. A growing number of franchisors contract professional firms to undertake such evaluations on their behalf. This test reveals whether you have the right temperament to operate a franchise of this particular network, taking the industry sector and the prevailing corporate culture into account. Whatever the outcome, accept it in good spirit; should it be negative, it might have saved you from making a serious mistake you would regret when it is too late to rectify it.

An opportunity presents itself 

Although during the first visit to the franchisor’s headquarters you should focus on selling yourself to the franchisor, you need not be the only one being appraised. This is your chance to evaluate the franchisor, both in style and in substance. You need to have confidence in the franchisor you choose, so ask questions about the business and the structure of the organisation at an early stage. You should also meet with some of the people you would be working with on a daily basis, should you join the network. Bona fide franchisors will welcome that. 

At some stage, you also need to check out the franchisor’s substance. Much of this will be covered in the network’s disclosure document.  

If, for whatever reason, a disclosure document is not available, ask the franchisor to respond to these questions in detail, preferably in writing. It is vital that you – and your professional advisors – know what you are letting yourself in for. Should the franchisor be reluctant to provide answers to your questions, it will be best to terminate negotiations immediately.

Talk to existing franchisees 

You should visit existing franchisees to learn from their experiences and to find out first hand what it is like to be a member of the network. Good franchisors will not only allow you free access to franchisees of your choice, they will insist that you contact a reasonable number of them. In most cases, existing franchisees will be happy to talk things over with you, provided of course that you respect the fact that they are busy people and have a business to run. 

Some of the questions you should ask are:

• By and large, did the franchisor keep promises made during the negotiating stage?
• Were the initial financial projections the franchisor presented you with realistic?
• Was the initial training you received adequate?
• Would you consider the operations and procedures manual a useful tool in day-to-day operations? Is it kept up to date?
• Is your franchise profitable?
• Does the franchisor appear to be aware of changes in the marketplace and quick to respond?
• If you are in trouble, for example due to serious illness, does the franchisor offer to help?
• What kind of ongoing support do you get?
• How long did it take you to recoup your investment?
• Does the franchisor welcome suggestions from franchisees?
• Does the network operate a franchisee representative council or similar body? If so, are you personally involved in its activities?
• Lastly, the acid test: “If given a second chance to decide, would you choose this franchise again?”

What is the franchisor looking for? 

Regardless of the industry sector, most franchisors look for some or all of the following characteristics in their franchisees: 

• A person with strong motivation and the necessary drive to achieve success.
• A person with confidence and enthusiasm for the product or service being sold.
• A person who may not have all the administrative and entrepreneurial skills necessary to start, develop and operate a viable business and who is therefore more likely to accept the franchisor’s systems and procedures, and appreciate the support service on offer.
• A person who not only welcomes change and is good at learning new things but who also is able to motivate and train others.
• A person who demonstrates an obvious interest in the business sector within which the network operates. Many franchisors, especially but not only the typical fast-food system, look for people with no experience in that industry at all.  

The rationale behind this is that a franchisee who comes on board with no prior sector knowledge and is carefully trained in the franchisor’s systems and procedures will be more successful than one who carries baggage from past experiences. 

Note: most franchisors agree that management skills, attention to customer service and sales skills are the most important qualifications a franchisee should have. There are exceptions, however, but these do not contradict what we have said. For example, a pharmacy franchise cannot operate unless a certified professional pharmacist is present during business hours. Such an individual can be employed by a franchisee with the necessary business acumen. However, problems could arise and, faced with such a situation, it would be best to form a joint venture with a qualified person.

One final thought ! 

We have said this before but it is of sufficient importance to bear repetition: No responsible franchisor will pressure you to make a quick decision. 

Regardless of whether you consider investing in a start-up venture or a resale, the moment the franchisor representative applies pressure on you to sign in a hurry, you should terminate negotiations at once.

Above all, do not fall for the old con trick along the lines of: “Someone else is very interested in this territory – unless you sign up now, you will miss out!”  

Numerous solid franchise opportunities are available, if you miss one, you will come across plenty of others in the near future. However, if you commit yourself to the wrong deal, you are likely to regret it forever.