As you decide to pursue a franchising career, it is important to know first how to investigate a franchise. Everything that you want to have in a business is already on top of your mind. You are 100% sure about the product that you want to business.
But hold on, think twice again and see if that is the best fit for you. To avoid disappointment, review your decision. Know why it is needed to investigate before buying a franchise and what are the ways to do it. Below is the helpful information.
Why Investigate Before Franchising
Remember, the purpose of your investigation is to collect franchise opportunities and from there, you got to select which one would be the best for you. A franchisor will also determine if you can be a good fit to own their franchise.
In other words, the investigation process is a two-way elimination. Compatibility is the secret to owning the franchisor-franchisee trust in each other. You have to figure that out before committing to any contractual agreement to ensure smooth business flow.
At times, things might turn out during your investigation. If you think the franchise you want does not exactly meet your expectations, a consultant can help to guide you.
The investigation really takes a lot of time and effort from the smallest to the greatest detail of the process. But it’s all worth it. You don’t need to force yourself to sign if you think you have to look for something else. It would be easy to move on and look further.
What are the key steps to investigate a franchise? The details below can help you.
6 Key Steps to Investigate a Franchise
Investigate a franchise company using these steps. If you do, you will end up finding a franchise that is worth your investment.
1st Step: Do a background check
To do a background check, you can ask the franchisor to give you their company history. How did it start, how many units do they have, what is their average annual revenue, etc. You can have these details through a document or video presentation.
In return, you will also be asked questions if you seem to have the capabilities of owning a franchise. If both sides have positive feedback, you are ready to take the next key step.
2nd Step: Familiarize The Franchise Disclosure Document (FDD)
FDD is a mandated disclosure document implemented by the Federal Trade Commission. These 23 sections of the legal form cover all the needed information about the company a franchisee has to know. These are:
- The franchisor and any parents, predecessors, and affiliates
- Business experience
- Litigation
- Bankruptcy
- Initial fees
- Other fees
- Estimated initial investment
- Restrictions on sources of products and services
- Franchisee’s obligations
- Financing
- Franchisor’s assistance, advertising, computer systems, and training
- Territory
- Trademarks
- Patents, copyrights, and proprietary information
- Obligation to Participate in the actual operation of the franchise business
- Restrictions on what the franchisee may sell
- Renewal, termination, transfer, and dispute resolution
- Public figures
- Financial performance representations
- Outlets and franchisee information
- Financial statements
- Contracts
- Receipts
Once you know the status of the company using the sections above and are convinced of it, you can proceed to the next step.
3rd Step: Investigate a Franchise - Know the franchise system
Each company has its own unique franchise system. Part of the investigation process is for you to know what kind of system do they follow. What are the things that you want to check about?
The franchise system includes its marketing strategies and operations programs. Review the format and visualize if it is something that you can easily follow and understand to run a successful business.
The franchise system must keep going effectively. A franchisor can discuss to you the details instead of providing you with a handout of their actual guide. If you think you can go along with it, then you have the reason to go on to the next step.
4th Step: Call or meet existing franchisees
Reaching out to the existing franchisees is one great way of getting reliable information about the franchise company. It may sound boring and a bit of interrogating but contacting them will also give you an overview of how to be an effective franchisee in the future.
What are the details that you want to know from them? Ask them about
The training program.
Know their answers about how practical are the given training as they prepare to start their franchising career
The support system.
Ask if they receive satisfying support from the franchisor since their grand opening day and throughout their term.
Marketing strategies.
This topic is quite sensitive to existing franchisees. You might hear negative comments about how marketing strategies work especially since most fees are collected from franchisees to advertise the brand product.
Buying power.
Does the franchisor have the ability to provide discounts to franchisees? This is one of the greatest benefits of being part of the company. You will have the access to even out most of the franchisee costs if the franchisor gives purchasing power.
Both parties’ relationship.
Ask the franchisee how do they feel about teaming up with their franchisor. Are they happy and satisfied? Or are they stressed and frustrated? How a franchisor treats existing franchisees is what you should expect when you became one of those franchisees.
The estimated capital.
Do not just rely on the investment requirement details indicated in the FDD. It would be best to ask the existing franchisees how much do they gave out to start the business. Your financial status will affect the success of your franchise.
You might be thinking about how to deliver these questions accordingly. But, do not skip this part of investigating a franchise company. It is truly helpful. Once done, the next step to do is to attend a discovery day.
5th Step: Investigate a Franchise - Don't miss the discovery day
This is the day when you get the chance to meet and greet the franchisor and the company staff. Part of the discovery day is for the franchisor to tour you around the headquarters. Grab this opportunity to get to know the franchisor well.
Observe the company personnel and imagine working with them in the long run. Do you think they can provide you with the assistance that you need in growing a franchise through them?
Ready all the questions that you want to be answered during the discovery day. Don’t miss out on all the information that you have the right to know.
Bonus Read: “Franchise Information Sources”
6th Step: Decide based on your research
Aside from all the 5 key steps mentioned above, the last but not the least step is for you to decide based on your evaluation. You might hire a franchise consultant. Their suggestions matter but what you think is the most important thing.
Do not let anyone influence you. Remember, it is your investment that you’re going to put at risk if you won’t make a careful decision. Double-check all of the information you have gathered and from there, make a firm decision.
Summary
Even how decided you are right now in owning a franchise business, the bottom line here is don’t rush everything. Take your time to research and evaluate each franchise model you think you want to invest in. Everything may seem fit, but would it be the best?
In this blog, you’ve learned that there are 6 key steps in investigating a franchise. Use those steps as part of your evaluation process. One advantage if you do so is that your investment has the assurance of bringing you back profitable returns.
Therefore, make sure you do well in analyzing the franchise business growth. Learn how to do it in this blog “Analyzing Franchise Growth in 4 Effective Ways.“
If you think assistance is needed, why not talk to experts. Reach out to a master franchisee or book an appointment with a franchise consultant. Either one of them can help you choose the best franchise business.