Have you finally caught the entrepreneur bug and are seeing franchise opportunities come up faster than you can say, “That’s promising?” Then it’s time to consider evaluating the businesses that are available and arranging them in terms of profitability/viability/risk/etc. If you follow this systematic approach, this process should not be daunting or even difficult:
Is the Product/Service Right?
A lot of franchises try to supply the highest quality product/service (at a premium price) believing they can outperform their competitors. However, every market has segments, such as those that want value for money, and those that seek cheap things. There must be a big enough market for the franchise’s product/service. Furthermore, this market niche must not have too many competitors since market saturation drives the prices down.
Is the Product/Service Unique?
The more alike different products are in a market, the easier it will be for a client to move to a competitor. Think of banks and mobile carriers, and firms that will be not allowed to charge premium prices. On the other end of the spectrum, specialized, differentiated items/services, like haircuts and personalized portraits, can enjoy higher prices because clients are unlikely to go to competitors if they are satisfied with what they receive.
Is There a Franchise Infrastructure?
Although having a good idea is a must, the arrangements around it are what turn the idea into a good business. Consider whether the franchise has contracts with suppliers and clients, whether the staff is fully trained to operate all aspect of the business, and whether it has a good public image. Many franchise opportunities fail simply because they have no clearly defined or well-executed marketing strategy. Should there be a sudden deterioration in the quality of service/product and economic conditions, a loyal customer base may mean the difference between profit and loss for the franchise.
Is the Franchise Financially Stable?
Different people prefer different levels of risk (or earnings variability). The key to measuring this is by how much debt the business currently has and how big its interest rate is. More debt usually means greater profits in good times and significantly lower margins in bad times, sometimes losses, as 2008-09 has showed. Less risk-prone individuals tend to avoid highly geared firms and the anxiety associated with them.
Is it Time-Consuming?
Usually difficult, more specialized franchises such as Fast Teks or production franchises will take more time to get used to, whereas restaurant franchises are not so time-consuming. Generally, the former should be higher paid because of the special knowledge that is needed. However, if you do not want to commit too much or are not in it for the great returns, opt for the former type of franchise opportunities.
Will it Fulfill its Purpose?
Some people seek out franchise opportunities because they detest working for other people, others think they have an idea that will make them the next millionaire, and still others want an alternative source of income. Whether the reason is psychological or financial, use all the previous guides to choose a franchise which fulfills this reason and not as an end to themselves.
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