Scott McDaniel, international development director at New Horizons, details three key elements of franchise research
When considering buying a franchise, it’s important to do the correct due diligence and make sure the opportunity is not only viable, but is the right fit for you.
Many people purchase a franchise without fully understanding the business concept, which can lead to problems further down the line. For the business to be profitable and for you to achieve your potential, it has to be something you’re interested in and you have a passion for.
By doing the proper due diligence, you are better positioned for long-term success and lower the risk in the business opportunity significantly. Researching properly and having a full understanding of what you are investing in before you take the plunge is the best way to avoid nasty surprises. Ensure you know all that is necessary to make an informed decision about the franchise you’re investing in and you are able to confirm everything you’ve been told by the franchisor.
Here are a few of the elements you should look at before investing in a franchise:
Is there a market for the product or service?
Entering into a franchise is a huge investment, as you could be tied into the franchise agreement for a number of years. Making sure there is a market in your territory for the product or service you will be providing is one of the most crucial elements of the due diligence process.
Are you entering into an already crowded market or is there room for you too? Assess the market in the territory you’re thinking of taking and talk to potential customers in the area. A crowded market will make it more difficult for you to cut through the noise and get your business noticed.
Assess the competition in the area. Find out how they operate and how large their customer base is in order to gauge whether there’s a gap in the market you can tap into. It also makes good business sense to mystery shop the competition when possible.
Another important factor to consider is whether or not the business is recession proof. Ideally, the product or service you are offering will be needed in both good and bad economic conditions. You can talk to existing franchisees to find this information out and research the marketplace thoroughly to check for any trends and dips.
Does the franchise have a good reputation?
You will need to check the franchise’s reputation, both with past and existing franchisees and the brand reputation across the country.
The brand reputation with customers using the product or service is important. You can check online reviews to see where feedback has been given and whether bad feedback is given across the board or only in certain franchise territories. This will help to give you an understanding of the overall feeling towards the brand. You don’t want to invest in a business no one wants to buy from.
Check the results, turnover and satisfaction of the existing franchisees. If asked, the franchisor should provide you with a comprehensive list of all existing franchisees - if it’s not willing to do this, alarm bells should ring straightaway.
Talk to as many franchisees as possible to uncover the full picture. Franchisees can often provide a more realistic view of the business because they’re working on it day to day and know the ins and outs of the market.
Find out if existing franchisees are satisfied with the training and support they received pre-launch, during launch and post-launch. Franchising is a great move for those people who want to set up their own business, but with the safety net of an established brand and team of experienced professionals around them.
Franchising is successful when a tried and tested model is followed and adhered to, so if you’re not provided with adequate information in order to follow the processes, your chances of success will fall dramatically.
Is the opportunity right for you?
Although business ownership is rewarding and gives you both personal and financial freedom, it’s also hard work.
Are you passionate about what you’re selling? This is an important factor because customers want to know they are spending their money wisely. If you fail to show enthusiasm for your product or service, this will rub off on the customer and they will be much less likely to want to invest their time and money with you.
In the early days, business ownership can take up a lot of time, so it’s important you’re not doing something you may get bored of after a while.
Having the support and opinions of your close family and friends is also a crucial factor to consider when deciding if the opportunity is right for you. Your family will be directly affected by the decision, both when it goes well and when it goes wrong, so it’s crucial you have their support and backing before you take the plunge.
You could all reap the rewards of being a business owner, but you will all have to pick up the pieces if the business does not take off.
In my view, due diligence before investing in a franchise should be the major part of your decision making process. There are over 930 franchise brands currently operating in the UK, so it’s important to sift the chaff from the wheat and pick the opportunity that’s right for you and will help you enjoy those all-important rewards of running your own business