How should you look for the right franchise system?
What questions crop up when choosing a franchise system?
A number of questions crop up again and again when going through the process of selecting a franchise system. Here are a few tips:
- Is the franchise system you are interested in a really serious franchise with
a good reputation?
You can turn to the franchise association in your country, your bank or your lawyer to get help to answer this question.
long has the company been acting as a franchisor?
It should be pointed out here that young and new companies also offer interesting concepts. On the other hand, fewer risks are involved for franchisees if they choose to join a system which has been intensively tried and tested.
- How many franchisees have already joined the
system and how many franchisees is the franchisor looking to recruit
When answering this point, concrete questions should also be asked about the franchisor’s pilot and/or test businesses. You should also contact other franchisees to ask them about their experiences within the system as well as their work with the franchisor.
- What proof should a franchise system present
to show it is a success?
The business success of a system is not the only important aspect here. The way a franchisor solves problems within a system as well as his long-term strategy for the business are both just as important.
- Does the franchisor offer high quality
products and/or services?
The level of quality is an indication of whether the franchise concept is oriented towards long-term or short-term growth. A franchise concept that is oriented towards the long term will make every effort to provide as many customer benefits as possible for its target groups.
- What levels of success have established franchisees enjoyed
with the concept being offered?
Concrete proof must be demanded here of the success of the established franchise-run businesses. Sample calculations are not enough unless the franchisor can guarantee that the results quoted in the sample calculations will definitely be reached.
- What competitive advantages, which should
make the franchisee a success, should be verifiable?
A franchise system must be able to prove that it has competitive advantages and that such advantages will continue on a long-term basis. A franchisor is required to continuously extend the competitive advantages of his system and/or to develop new advantages. If he fails to do this, the franchise system will lose its appeal in the market which in turn will affect a franchisee’s business.
- What kind of market exists for the
products/services of the franchise system, in particular in the area where you
are interested in setting up a location?
Analyses of both the target group(s) and the potential location must be carefully examined to assess the franchisee’s potential future business. You should not rely solely on statements given by the franchisor but carry out research work yourself.
- Is the franchise concept oriented towards the
long-term needs of the target groups?
This question should be asked to clarify whether a system has just one possibly short-term product or whether it is oriented towards the long-term needs of a sufficiently large target group base.
- What does the franchisor expect of his franchisees?
Besides the financial requirements, you should also check in good time what qualifications are needed as well as assess your own long-term business plans.
- What investments are needed to join a
Here you should look at the investments required during the whole of the contract term of a potential franchise agreement. Investments should be calculated in full – from the point when you join the system to the end of the contract term.
Many franchisors provide support here. If you are unsure, then you can contact your bank and your accountant for more assistance.
expenses are incurred when joining a system as well as when the business is up
In many cases, people only consider the costs for actually joining a system. You should find out in good time, however, what further expenses may be incurred after you have started up your franchise business.
For example, if the system involves a retail shop, then the furnishings often have to be changed or new IT and software needs to be purchased at regular intervals. You should also take into consideration whether you only wish to open up one location or whether you wish to purchase a further franchise territory in the future.
- What business data is needed for a franchise
Plain-speaking and plausible figures are needed here to enable you to really assess whether it makes good business sense to join a franchise system.
Serious franchisors normally provide verifiable documents about established franchise locations. You must, in any case, draw up sample calculations for the location you are planning to set up. It is important here to draw up a statement on future income/revenue that is kept as conservative as possible as there is no guarantee that your location will achieve the sales reached by other locations. You should also have your profit calculations checked by your bank and accountant.
At this point you should also not forget to check whether an alternative opportunity – including those that do not involve franchising – may be more profitable for you.