Evaluating Your Business As A Franchise

EVALUATING YOUR BUSINESS AS A FRANCHISE By Ed Teixeira The first step in the franchising process is to determine if your concept can be successfully franchised. The word “successfully” is key because just about any business can be franchised. However, it’s important that the business concept that is franchised “works” for both the franchisor and franchisee. The first step in this process is to complete a feasibility study for franchising your business concept.

I have encountered a number of new franchisors that did either a very simplistic evaluation of their business or none at all. Some business owners are lured into franchising after having conversations with franchise consultants and or to save money they skip the feasibility process altogether.

This article will show you how to do your own feasibility study. You’ll learn the key steps in the process and the pitfalls and key factors to look for. If you still have some doubts about franchising when you’re finished at least you’ll have gathered enough information to present to your franchise consultant or business consultant and you’ll not have to spend a large amount of money. In fact, the information you gather as part of this process will have application for your business regardless of whether or not you choose to franchise.

The following represents key items to consider:



POSITIVE ATTRIBUTES 1. Business Traits-must have a certain uniqueness whereby its different in terms of products, services, markets, investment level 2. Operational Simplicity- the business should be such that a franchisee can learn how to operate it in a fairly short period of time 3. Adaptability and Demand- the franchise concept should work well and adapt to numerous locations and markets. There should be a strong demand for the products and services 4. ROI- there needs to be a good return on investment and profit after the initial franchise fee and royalties 5. Strong Management Team- the franchisor needs to represent by a strong management team. It will take more than one person to lead a franchise operation.

6. Business Credibility- the company should have a good track record and successful history 7. The Business Must be Teachable- there needs to be systems and procedures in place. There should be documentation

NEGATIVE ATTRIBUTES 1. The product or service has a short life span. It’s a fad or short-lived concept 2. The gross margins are too low to support a business with a royalty and other fees 3. The skills to operate the business are complex and/or take a significant period of time to learn to operate 4. A business type, which relies on repeat customers and a special service. Professional services like legal and accounting are examples 5. Unique market characteristics, which are not easily found. The location for the business has very special requirements 6. The business has very complex and detailed audit requirements 7. A company or business which is failing or marginally successful

Based upon the above factors, the first step is to critically review your business and its key components, including its performance, operation and the opportunities available in the marketplace.

Additionally, competitors, especially those offering a franchise opportunity in the same industry, need to be reviewed and evaluated.

The feasibility of franchising a business or concept should focus on four (4) key areas:

Business Operations Analysis Franchise financial model Competition Market Factors Business Operations Analysis You need to conduct an analysis of your business from an operational standpoint. This will help you to develop a profile of your business, which will be a key aspect of the feasibility study. Look at your business from a franchise perspective. This will help you to be more objective.

· Is your business profitable?

· Do you have a good reputation in your market place?

· What is the cash flow generated by the business?

· What are the sales trends?

· Removing owner perks or using a recast financial statement determine pre-tax profit dollars and income as per-cent of sales.

· How many locations do you have? More than one location is an advantage.

· Evaluate the quality of your management team.

· Are you so critical to the operation that you can’t leave the business for a week?

· Do you have any staff that could do the training?

· Can a member of your staff operate the business when you start up and launch the franchise?

· How difficult is your business to operate?

· Can it be easily taught?

· Can your business be set into key processes or steps?

· Do you have an outline or manual, which documents your business operations?

· Do you use special software in your business?

· Is the software an integral part of your business operation?

· What does it cost to establish a new location or unit for your business?

· Some businesses are so complex they don’t lend themselves to being franchised.

· Are there similar businesses, which are franchised or operate as a chain? This is an important question since it will enable you to identify and compare similar business concepts. On the other hand, you may have a concept that is quite unique but still lends itself to franchising.



Evaluating Your Business As A Franchise - To learn more about this author, visit Ed Teixeira's Website.

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