EVALUATING A FRANCHISE OPPORTUNITY.

Owning and running a business through a franchise arrangement has become a popular way to fulfill dreams of entrepreneurship. Franchise businesses include everything from restaurants to retail stores to auto service centers.

When you buy a franchise, you are often able to sell goods and services that already have name recognition. The franchiser typically provides you with a “roadmap” for how to start and operate the business. However, as with all businesses, there are risks and no guarantees of success.

Here are a few of the many factors you should consider when evaluating franchise opportunity:

Costs

There typically are both upfront and ongoing payments to the franchiser and costs of starting and operating the business.

Your initial franchise fee may be non-refundable. You will also incur startup costs for a location, equipment, inventory, working capital and other things like licenses and insurance.

You also probably will be required to pay ongoing royalty fees. Usually these are based on revenue and can be owed to the franchiser even if your business does not show a profit.

Another typical cost is an advertising fee to help support the franchiser’s advertising and promotional activities.

Controls

To ensure standardization, franchisers will impose some controls on the operation of your business. These can include site approval, design and appearance of your location, and types of products offered. There may even be restrictions on how you run the business on a day-to-day basis.

Terminations and renewals 

Your franchise agreement will usually include language covering how, why and when either party may end the agreement. Make sure you understand your rights and those of the franchiser.

Other considerations

▪ The size of your investment. How much money will starting and running the business require, and how much can you afford to lose?

▪ Your abilities. Do you have the right combination of technical skills and management abilities to run a business?

▪ Your goals. What level of income do you want and how much time are you willing to spend to start and operate the business?

▪ Type of franchise. Evaluate the demand, the competition, the support you will receive and the financial dynamics of the opportunity.

Be sure to talk to some of the franchiser’s other franchisees to learn about their experiences and how well or poorly they are doing.