Selecting a Franchise
Like any other investment, purchasing a franchise is a risk. When selecting a
franchise, carefully consider a number of factors, such as the demand for the
products or services, likely competition, the franchisor's background, and the
level of support you will receive.
Demand Is there a demand for the franchisor's products or services in your community?
Is the demand seasonal? For example, lawn and garden care or swimming pool
maintenance may be profitable only in the spring or summer. Is there likely to
be a continuing demand for the products or services in the future? Is the demand
likely to be temporary, such as selling a fad food item? Does the product or
service generate repeat business? Competition What is the level of competition, nationally and in your community? How many
franchised and company-owned outlets does the franchisor have in your area? How
many competing companies sell the same or similar products or services? Are
these competing companies well established, with wide name recognition in your
community? Do they offer the same goods and services at the same or lower price?
Your Ability to Operate the Business Sometimes, franchise systems fail. Will you be able to operate your outlet even
if the franchisor goes out of business? Will you need the franchisor's ongoing
training, advertising, or other assistance to succeed? Will you have access to
the same or other suppliers? Could you conduct the business alone if you must
lay off personnel to cut costs? Name Recognition A primary reason for purchasing a franchise is the right to associate with the
company's name. The more widely recognized the name, the more likely it will
draw customers who know its products or services. Therefore, before purchasing a
franchise, consider:
- The company's name and how widely recognized it is. -- If it has a registered
trademark.
- How long the franchisor has been in operation.
- If the company has a reputation for quality products or services.
- If consumers have filed complaints against the franchise with the Better
Business Bureau or a local consumer protection agency.
Training and Support Services Another reason for purchasing a franchise is to obtain support from the
franchisor.
- What training and ongoing support does the franchisor provide?
- How
does their training compare with the training for typical workers in the
industry?
- Could you compete with others who have more formal training?
- What
backgrounds do the current franchise owners have?
- Do they have prior technical
backgrounds or special training that helps them succeed?
- Do you have a similar
background?
Franchisor's Experience Many franchisors operate well-established companies with years of experience
both in selling goods or services and in managing a franchise system. Some
franchisors started by operating their own business. There is no guarantee,
however, that a successful entrepreneur can successfully manage a franchise
system.
Carefully consider how long the franchisor has managed a franchise system. Do
you feel comfortable with the franchisor's expertise? If franchisors have little
experience in managing a chain of franchises, their promises of guidance,
training, and other support may be unreliable.
Growth A growing franchise system increases the franchisor's name recognition and may
enable you to attract customers. Growth alone does not ensure successful
franchisees; a company that grows too quickly may not be able to support its
franchisees with all the promised support services. Make sure the franchisor has
sufficient financial assets and staff to support the franchisees. Next Chapter:
Investigating Franchise Offerings
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