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How To Evaluate a Franchise Opportunity Properly

Buying into a franchise is a big life decision, so make sure to do your due diligence before committing to choosing one to sign with.

Looking to become a business owner but not sure where to start? If you don’t have any entrepreneurial experience, then franchising is a good place. Franchise brands are backed by a proven system that can catapult franchisees toward success and profitability. But before you sign your life savings away, it’s important to do your research on a brand to ensure it’s the real deal.

1851 Franchise spoke with Steven Gardner, founder of QSR Franchise Development, about properly vetting a franchise and learning best practices to help you make a more informed decision when choosing a brand.

How to Review the Franchise Disclosure Document

After your initial inquiry into a brand, the franchisor may send you its Franchise Disclosure Document (FDD) — the brand’s Bible, so to speak. Within the FDD you’ll find important details like cost to build, the initial franchise fee, ongoing royalties, marketing costs, a list of existing franchisees and those who have left the system. These documents are usually pretty lengthy and overwhelming to someone who’s unfamiliar with the jargon, so it’s helpful to review it with someone who knows what they’re talking about, like a lawyer or franchise consultant.

Who to Talk to About the Brand

No one’s going to better prepare you for the franchising experience than franchisees who are already in operation. If they know you won’t be encroaching on their territory, they’ll likely be more than happy to offer advice and offer insights into their day-to-day. 

Be prepared to call more than a few franchisees. You want the chance to talk to successful franchisees , those who might be struggling and even franchisees who might have sold their business to get the full perspective.

But Gardner says it’s not enough to stop there. Talk to someone who works in franchise development or a franchise consultant as well. They can help you read through the FDD to spot anything suspicious. 

“There are a number of people who you should be talking to, including people like me who can help you spot red flags,” he said. “I put myself in the shoes of the franchisee so I can offer an overview.”

How to Ask the Right Questions

Once you’ve got the right franchisees on the phone, it’s just as important to ask the right questions. 

It’s helpful to learn the franchisees’ history with the brand; how many units have they opened? How many have they closed? Do they plan on opening any more? If they did close any stores, what was their reasoning? 

Inquire about their experience working with the franchisor; were they attentive? Did they provide support when they needed it, and what did that look like? How did they treat them and were they true to the promises they made early on?

Most importantly, are they making the money they expected to make? At the end of the day you’re investing your savings in an opportunity to earn money, so if it’s going to take you longer than expected to make a profit, perhaps it’s time to start researching a different brand. 

How to Research the Founders

Spend time looking into how the brand came about and who’s behind it. Are there any wrinkles in the founders’ story or in their financials? The more you learn about the founders, the more you’ll understand the motivations of the brand and if its values align with yours. 

“I’d want to know a lot about them personally,” said Gardner. “Often the brand's financials are a big indicator, I would go to an accountant who’s able to read through them.”

How to Spot a Franchise With Strong Support

One of the main reasons to buy into a franchise is the built-in support system, so it’s in your best interest to understand what exactly support looks like from the franchisor. If you’ve never owned a business before, you’re likely going to need a lot of hand-holding, even if just at the beginning. Find out how extensive training is and how in-depth the brand’s manuals are. Beyond training, find out what ongoing support looks like. A good franchisor will have your back every step of the way, and a bad one might leave you to fend for yourself when things get tough.

“Learn more about what their support team looks like and how they are going to support you from the time that I go into training and open my unit and beyond that. What kind of ongoing support should you expect, and do they deliver?” said Gardner.