How to assess a franchise opportunity

Franchising is a popular option for people looking to run their own business because it offers the opportunity to buy into a proven business model with an established brand. This can be a less risky option than starting a new company from scratch.

However, all franchise opportunities aren’t equal. Before you reach any agreement with a franchisor you need to make a full assessment of the deal on offer and make sure it’s right for you. Here are some things to consider and questions to ask when weighing up a franchise opportunity.

### Take all costs into account

If you’re going to start a franchise, there’s not only the initial cost of setting up to consider but also the regular management services fee you’ll need to pay the franchisor. It’s important that you understand how this will be structured. Usually, it will be a percentage of your turnover – so the better your business does, the more the franchisor gets in return. This is the deal structure recommended by the British Franchise Association (BFA) – if it’s in the franchisor’s interests for your business to make money, they’re more likely to be forthcoming with support and resources to help you boost sales. If the deal hinges on the franchisor making money from the initial sale alone, there will be no motivation on their side to help you out.

### Assess training and support options

Ask the franchisor if they will provide training. If so, find out where this will take place and who’ll be paying for it. Enquire about the services that will be available for the long term, not just the initial stage of setting up the business.

Find out what literature the franchisor supplies, such as instructions, operating manuals and newsletters. Also ask if they help with advertising and promotion.

### Find out about the background and history

Get some basic information on the franchise, such as how long it has been running, how many franchisees are currently in operation and what procedures are in place for maintaining standards. Find out how many of their franchisees have failed.

It’s also worthwhile finding out if the franchise company is a member of the BFA, as this will be an indication that it meets certain standards.

### Speak to other franchisees

If you are considering a deal with a franchisor, seek out some of their franchisees to find out what the opportunity is like in reality. Ask them about their experiences of working with the franchisor and whether the deal turned out to be as good as it looked on paper. Also enquire about the level of support and resources they receive. If any franchisee you speak to is struggling, try to find out why.

A visit to other franchisees will also give you an indication of the overall quality and standards of the franchise – this is important because, potentially, you will be trading under the same brand name, so how other franchisees operate could affect the way in which customers view your business.

There’s no need to do this “undercover”. A reputable franchisor should have no problem with you contacting their franchisees for research purposes and they should be happy to put you in touch with people to speak to.

### Get a sample contract

You can ask the franchisor for a copy of the standard contract they use for franchise agreements. This will give a chance to look through it thoroughly while you’re weighing up the opportunity. You can also get independent advice on anything you’re not sure about.