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How to spot a solid franchise opportunity

Written by: Ian Macleod

Article Overview: What should you look for when looking for a franchise to buy? There are a lot of franchises out there, and a would-be franchise owner needs to be able to differentiate between a good opportunity and a potential disaster. Franchise owners want you to buy their product (the franchise) because that is how they make money. But you need to be able to tell the difference between the shiny sales pitches and the real diamonds underneath all the hype. Here are some simple things you can do to spot a great franchising opportunity:

How to spot a solid franchise opportunity

HOW TO SPOT A FRANCHISING OPPORTUNITY

What should you look for when looking for a franchise to buy?

There are a lot of franchises out there, and a would-be franchise owner needs to be able to differentiate between a good opportunity and a potential disaster. Franchise owners want you to buy their product (the franchise) because that is how they make money. But you need to be able to tell the difference between the shiny sales pitches and the real diamonds underneath all the hype. Here are some simple things you can do to spot a great franchising opportunity:

1. Do your homework. The simplest, most effective way to ensure you know how you can find a good franchise is first learn everything you can about business, franchising and all that goes with it. If you can’t tell the difference between a balance sheet and a sales invoice, you need to take some time to learn some more. Nothing is more reassuring than being able to rely upon your own knowledge instead of taking someone’s word for it.

2. Find out about the company. In addition to increasing your knowledge about business basics, you’ll want to research the company as well. How long have they been in business? What do their numbers look like? Do they belong to a professional organization like the International Franchise Association? If not, why not? There are some scam franchises out there, so you’ll need to ensure the company is on the up and up before you commit. You may need to hire a reliable accountant or business analyst to evaluate some of the details for you, as they know what to look for when searching for strong business fundamentals.

3. Where do they stand? If you are interested in a franchise, you’ll want to learn as much about them as you can. Though you don’t need to know everything, the most important thing you can look for is their performance as compared to others in the industry. If a restaurant is seeing sales increases of 15% per year, that probably sounds pretty good. But what if everyone else in the industry is experiencing 25% growth? Not so good now, is it? Finding which business is on top, and why, is key to finding a good franchising opportunity.

4. How do they spend their time? A great way to determine whether or not a franchise will be successful is to look at how the franchiser (the business that sells you the franchise) spends their time. Are they focused on growing the franchise base, or are they focusing on the franchises they already sold? Be careful here. Though the latter may seem to be the better indicator of success, it isn’t. A company that is focused on growing their franchise, increasing name recognition and getting a broader customer base is much better than a franchise that spends all their time helping their franchisee to get going. The first is building a long-term business, while the second doesn’t have a strong growth plan.

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Article Tags: accountant, balance sheet, business analyst, business basics, business fundamentals, diamonds, disaster, franchise owner, franchise owners, franchises, homework, hype, international franchise association, knowledge about business, money, professional organization, sales increases, sales pitches



Related Forum Posts
Franchising vs. Licensing - While Ken's definition of a franchise is correct, I disagree with his statement that a franchise and a license can mean the same thing. A franchise [u:2pwsjr5r]contains [/u:2pwsjr5r]two licenses. A trademark license (the name and fee) and a business opportunity license (a system and a fee). The combination of those licenses in the same relationship creates a franchise. If you want to license a business opportunity, you need to tell your licensee that they [u:2pwsjr5r]cannot use your trademark[/u:2pwsjr5r]. If this is your growth strategy, you will neglect to build a brand. While that is not always important, it often is. We tell our clients not to think of whether a particular business relationship will be, but instead to structure the relationship the way it makes sense from a business perspective. If it then turns out to be a franchise or a license, then so be it. The difference in cost between the two forms of expansion, done properly, is not very signficant. If you are interested in learning more, I would be happy to send you a free copy of a one hour seminar on "How to Franchise a Business." It goes into some detail on this topic. You can write to the email below or get it on my website.
What makes a good franchise? - I have yet to find a comprehensive list of what makes a good franchise opportunity. What are the main components that entrepreneurs should look for before buying into a franchise? Any ideas from our expert forum members?
Re: Which franchise would you buy? - I know this topic is nearly 10 months old, but this is a question you can ask at anytime. It might be interesting to ask, now, once again, what franchise (or in what industry) would you buy at this time? I was recently on a forum and came by the discussion on whether or not a franchise investment in the Advertising industry might be wise at this time? Something along the lines of a sign business, multi-media opportunity, etc. Won't businesses be needing/using these types of franchise businesses more than ever to try and gain customers/clients?
Re: Top Franchises For 2007 - I like to watch the fast food franchise industry push the fitness/beauty franchise industry and so forth. Assuming there exist other correlations like this within business opportunity investing, what are they? (maybe a topic for a whole new post)
Re: Best way to start a business? - Hi Rob Welcome to the forum, nice to see you in here. I agree that many people have started franchises without prior business knowledge, but if one listens to what Robert Kiyosaki says in one of his interviews where he is discussing franchise and MLM types of businesses. He says that for anyone joining these types of business their first priority is to learn what the franchise or MLM company can teach them. This will give them a solid start of business knowledge which can then be used in starting their own businesses from scratch. MichelleJ


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