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I’m a bit of skeptical about franchises. Do not get me incorrect; I’ve seen many successes in franchising. Nonetheless, as everyone knows, the world is just not good, and earlier than leaping into franchising, there are a number of objects I like to recommend researching and contemplating.
1. Go to current places
Let’s begin with the plain relating to preliminary homework. In case you are shopping for a franchise with bodily places, you could go to as many as doable. Remember the fact that it’s probably that the franchisor might advocate visiting sure places. Though you must go to the advised places, you could additionally go to others.
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2. Take note of model variations and actual property
When visiting franchise places, being attentive to many particulars is necessary. Look out for consistency. If you happen to see completely different logos, assorted retailer designs, or, within the case of meals franchises, differing menus, or, in service-based franchises, completely different choices, remember to ask the franchisor about these discrepancies.
Real estate selections matter, too. If the model depends on impulse visits and never as a vacation spot, visibility is essential. If the places are in rundown procuring facilities with poor visibility, these companies are more likely to battle.
Moreover, if the places usually are not well-maintained, do not have optimistic on-line critiques, or have a nasty expertise, it is not a very good signal. Do not forget that though you will not have any direct enterprise ties with these different franchises, you all symbolize the identical model. Due to this fact, it is important to vet these different places completely.
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3. Vetting the franchisor
To vet a franchisor, begin by reviewing the Franchise Disclosure Document, then communicate with current and former franchisees. Whereas the franchisor might present some contacts, it is essential to search out others to get various views independently.
Key questions embrace their expertise with the franchisor, plans for added places, and precise gross sales versus expectations. If doable, communicate with franchisees from closed places to grasp potential points.
Problem in contacting franchisees might point out a non-disclosure agreement, which may stop open communication. Such agreements could be a purple flag, suggesting the franchisor is probably not clear about their operations.
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4. Demographics and build-out prices
You additionally must dive deep into what demographics the franchisor is beneficial. If the franchisor has this found out but, it’s regarding to me. It might be finest if you happen to additionally made certain the franchisor clearly understands what the build-out will price and what utility necessities they’ve.
Most franchisors will give a spread relating to prices, which can range dramatically. Thus, you really want to make sure you are doing all of your homework and gathering your crew of consultants to help and confirm.
5. The franchise settlement
After you do your preliminary homework of visiting current places and speaking to current and, if doable, ex-franchisees, then come to the franchise settlement. This authorized doc shouldn’t be taken calmly.
As with all authorized agreements, I like to recommend consulting a lawyer specializing within the particular business. There are attorneys on the market who concentrate on franchise regulation. I like to recommend you make the most of one on this course of. Though it’s going to price you cash, it may stop you from getting right into a scenario you don’t perceive.
When signing your franchise agreement, you could perceive the settlement from prime to backside. For instance, you must know what occurs if you don’t discover a house throughout the interval established within the franchise settlement. Do you get an extension or lose your preliminary franchise price paid? It’s worthwhile to know in case you have any territory manufacturing. Can the franchisor promote one other franchise to somebody who can open close to you? Most franchises will get some radius safety, however I’ve seen some franchises not give any. If safety is given, it’s nonetheless not sufficient to forestall the oversaturation of the franchise throughout the commerce space.
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Moreover, I’ve seen franchisors hold prime areas for his or her company shops and unload second — or third-tier markets to franchisees. If that is so, you might be just about competing with the franchisor, who has a greater territory than you.
You will need to attempt to keep away from surprises, and the one manner to try this is to not assume something, ask questions, and do your due diligence. If you happen to do issues accurately the primary time, the chance that it is possible for you to to turn into a multi-unit franchisee is far larger. Keep in mind, do not feel ashamed if you happen to have no idea the reply to one thing. It’s higher to ask a query than remorse not asking it.