A Guide to Evaluating Franchise Opportunities

A Guide to Evaluating Franchise Opportunities

Thinking of starting a franchise but unsure of its potential? Look no further, today you will learn how to evaluate a franchise opportunity.

Buying a franchise is one of the safest ways to start your own business.

It comes with an established brand name, its loyal customer base, an established business model and also brings the assistance of an experienced corporation.

Starting a franchise is a sure shot way of flying in the business world without the risk of falling. However, that is only possible if one is careful before investing and one invests in an opportunity only after prudently evaluating it. Today we shall look at how to evaluate a franchise opportunity. www.frantastic.in 1

1. Performance of the Parent Company I cannot stress enough on the importance of the performance of the parent company to a franchise. The franchise is a representative of the parent company and is directly affected by the performance and the reputation of the company. If the company is performing well, it will enhance the operations and the sales of the franchise, but if a company is underperforming or performing poorly, it will definitely hamper the image, the operations and the sales of the franchise.

The franchise exists as a function of the parent company, the franchise makes use of the company's suppliers, vendors, contacts, etc. and any issues in the company's dealing or performances will influence the franchise's dealings too. If the company is underperforming, it shows that their business model might be failing and since a franchise adopts the company's business model, this could only mean failure for the franchise too. Hence, it is imperative that you choose a parent company, which is successful and has been recording profits in its account books.

2. Performance of Other Franchises If you want to succeed as a franchise of a particular company, you need to know how their other franchises are faring or might have fared in the past. Understanding the journey of past and present franchises of the company is crucial to your endeavor. Only when you know of their hardships, challenges and victories or failures, will you be able to decide for yourself and if you want the same.

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Following the records of other franchises will not only teach you how to run your own but will also help you evaluate the company. You need to look for possible hindrances the franchises faced and how did they overcome these hindrances. You need to pay attention to their profit and loss statements to know if they have been profitable in the past and or recently. Other franchises can act as a guiding light, which will show you the way to your own successful franchise.

3. Brand Value Estimating the brand value of a company is not easy. A brand could mean something to someone and not the same to someone else. This makes it highly subjective, however, economists can define it by the net earnings of the brand, but this is only a part of the value that you should be looking at. Net earnings brought in by the brand is a good place to start with and compare. It will give you an estimate of the brand equity and its value in monetary terms.

Perceived brand value is another thing altogether. This includes the image that the brand has in the hearts and minds of people.

Sometimes a higher perception of the brand value is more important than its actual monetary value. The perceived value is what brings customers to the stores and is what drives sales. Finding out the perceived brand value is not as easy. You will need to conduct research and speak to many customers and to people from the general public in order to understand the perceived brand value of a brand.

Once, you do have an idea of the perceived value, then you can make your decision based on the popularity of the brand. General consensus shows that a popular brand under the right management would be a success. www.frantastic.in 3

4. Customer Loyalty Another important segment that you will have to research is the existing customer base of the parent company. You need to understand their likes and preferences. You need to know whether they are satisfied with the company and its products and services or are they merely using it out of habit or due to lack of options or due to its easy availability or cheap pricing. Unless you have this data, you would not know whether the customers are loyal and satisfied enough to stick with the company or will they bolt at the first sign of competition. Choose a company, which has loyal and satisfied customers and you will always have a bankable flow on income.

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5. Market Share It is important to study the market the company operates in. For example, if it a fashion company, you need to study the fashion market and you should know how big a share of the market does the company command. Choosing a franchise, which is dwarfed by other companies in the market and with no future plans of increasing or maintaining the market share would be a sign to exit. www.frantastic.in 5

6. Franchise Agreement You need to pay attention to the terms and conditions in the franchise agreement, including the franchise fee. Compare the franchise fee to other companies and try to understand the reason behind the difference, if any. Other important factors to be considered are the profit sharing ratio and terms, the assistance provided by the parent company and the freedom provided by the parent company. Study all these terms individually and agree to only what suits you. Negotiation is common in franchise agreements and you should compare different companies and their benefits before making your choice.

7. Total Investment Calculate the total investment the franchise would require. To know more about how to calculate the total investment needed to start a franchise. It is important that you know the whole cost upfront and then you can choose if the franchise would be beneficial to you.

8. Break-even Time Once you have your total investment, you need to calculate an estimated break-even time. For this, you will have to do some research to understand the market that you are entering and you might need to take help from the parent company and other franchises to create an estimation of future revenue. Only when you know how long are you likely to take to break-even, will you be able to make an informed decision on whether or not you want to invest in a franchise.

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These are some factors, which will help you in evaluating a franchise opportunity. However, these are technical factors and they do not define your work ethic. If determined, you can turn a mediocre franchise into an excellent one and if not motivated, you could run down an excellent franchise into a mediocre franchise unit. Follow these steps to make a choice while evaluating and choosing from franchise options and start with a positive outlook with the goal of creating and running a successful franchise unit.

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