For those who want to invest in a franchise, it is advisable to conduct due diligence to make sure you’ve made an informed decision before you delve into the venture fully. It is advisable to ask different questions, and the answers to each one of them will guide you on the franchise that you should own.
Some of the questions to ask include:
- How Much Capital Is Need Before the Franchise is Fully Operational
The initial investment for the franchise will vary. You need a few thousand dollars to ensure you’re up and running. In some cases, you may need more than one million, depending on the type of franchise. There is an FDD (Franchise Disclosure Document), and it usually lists the initial franchise fee. The start-up costs are also indicated, and the main focus is on equipment, real estate, licenses, among other things. You should ensure you get an appropriate answer in this case such that you’ll have a clear understanding of the venture and what is needed such that you can ensure everything is running smoothly.
- Is There any Ongoing Fees? How Do Royalties Work?
You should take time to learn more about the financial obligations of a franchisor, including whether or not you’ll be tasked with paying royalties or any other fee such as advertising. By understanding such essentials, you can easily manage your business while ensuring it is afloat financially.
- What Will Set the Franchise Apart from the Competitors
The market for different brands is quite competitive, and it is also saturated. To gain a competitive edge, your primary focus should be on being unique and innovative. Ask yourself about where your brand will fall in the spectrum? Does it have a competitive edge? Is the market very competitive? Who are your major competitors? A franchisor can answer each of these points well, and depending on their response, you’ll be in a better position to determine which franchise unit you should own.
- How Are Disputes Resolved?
As you carry out due diligence, you should take time and look into how disputes can be resolved in case they arise at some point. The FDD (Franchise Disclosure Document) has some information on the legal actions which involve the officers and the franchisor. You should also focus on why a franchise can be terminated if the contract is not upheld fully.
- Ask About Your Territory and How It Will be Protected?
A franchisor can shed light on how they manage their territory for the franchisees. Also, you’ll get to learn about your rights as per the present agreement. Does the franchisor have the right to approve a location for the franchise? Will the territory be protected for the franchisees? Take time to understand whether you’ll have protection from the competing units.
- Learn More about a Typical Day for a Franchisee?
You should learn about the tasks you’re supposed to handle daily such that you’ll have a better picture of your work-life daily. Additionally, you should take time to learn about the present challenges that different franchisees encounter such that you’ll make an informed decision about whether the opportunity suits you or not. Top franchise lists will give you a good idea which franchises are worth exploring.
- What is the Criterion Used When Choosing a Franchise?
Franchisors usually compile a list of personality traits and qualifications that will suit their brand. You should investigate the criterion used and determine whether you’re skilled enough. Also, do your personality traits align with the expectations of the franchisor?
- How Much Capital Is Needed to Maintain the Franchise Unit?
Apart from the capital needed to start the venture, the franchise owner needs to have enough capital to ensure the venture stays afloat. The operating capital is supposed to last for a few months. Eventually, the business will break even, and you’ll find out the amount of time the franchise unit takes to recuperate and become profitable.
- Is the Franchise Company Strong Financially?
In the FDD Item 21, you can get access to the financial statements of the franchisor. You’ll peruse through the financial statements and get a better picture of whether the franchise company is stable or not? The franchisor is better positioned to answer questions such as how they have managed to attain financial growth over the years.
Depending on the answers to each of these questions listed above, you’ll be in a better position to choose a suitable franchise to own. Each franchise is different, and you should know what you’re getting into.
