Is there a secret trick to franchise research?
- Wednesday, May 11, 2011
Buying a franchise opportunity can be a tricky and confusing process, requiring prospective buyers to invest a significant amount of time researching options and interviewing franchisees. The sheer enormity of the task leaves many wondering if there is some secret to knowing whether a franchise will sink or swim and thereby save them hours and hours of work.
While there may not be one overall indicator that will signal to franchisees the success and riches ahead of them, there are several tricks to make the research process not only smoother but deliver a higher probability of success.
The first piece of advice Entrepreneur magazine contributor Todd Maddocks offers readers is a modern version of the famed Shakespeare line, "To thine own self be true." Maddocks suggests that prospective franchisees consider what they want to be when they grow up.
"That sounds pretty elementary until you realize most franchise agreements have an initial term of 10 years, and that means performing your basic duties as a franchisee for an entire decade. Consequently, when you buy a franchise, you must envision the day-to-day routine," he writes.
However, following one's dreams and passions may not be enough, especially in today's economy. With the small business sector continuing to face difficulties meeting their funding needs, despite the National Federation of Independent Business claiming more than 90 percent had their lending requirements meant in March, franchisees should always start their franchise shopping trip at the bank.
Many banks are familiar with the franchising industry and thus can offer very frank opinions on the viability of certain concepts, Maddocks writes. "Lenders will also scrutinize franchisors for systemic issues you may not think about. Banks see profit and loss statements sometimes unavailable to you, and they know which franchises are in trouble," he adds.
As a result, if your banker tells you the franchise is a less-than-profitable opportunity, it would prove wise for franchisees to listen.
Lastly, Maddocks suggests that prospective franchisees become "retail barons." When franchisees see commercial areas for sale, they should jump on the opportunity to call the number and learn all they can. Furthermore, if they want to expedite the purchasing process, they should have a net worth of at least $200,000 in case of they default on the least, Maddocks notes.
While these points will ensure that a potential franchisee makes a smart decision, they don't mean he or she should forget to do the more traditional research elements, such as interviewing current franchisees and speaking with the franchisor.
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