Trying to figure out if a franchise opportunity is a grime or gold? In this article, I would explain which & what factors will help you judge a franchise. In particular, I will show you which aspects to consider:
1. Growth – Is a franchise growing or shrinking?
2. Average Sales per Unit and its history.
3. Success Rates of units in general.
4. Continual Support provided by the franchisor.
Considering a Franchise opportunity or Investing in a franchise business? Did you know that if you have at least $5000 in your account you can use this money to start or buy a business?
Growth
According to a recent KPMG and Franchise Association of India (FAI) report, the India franchise economy has a potential to grow to $51 billion in 2017 from the present $13.4 billion. The franchise industry is expected to contribute almost 4 percent of India’s GDP in 2017. Increasing consumption, willingness to spend, growing preference for branded products, global exposure and use of international brands is driving the demand side of franchising. This growth has increased the set of opportunity-driven competent entrepreneurs and has grown the awareness of franchising as a business opportunity and its relatively low-risk profile.
One of the easiest ways to measure how well a franchise is doing is to look at their growth: How many units have they added or lost in recent years?
From my experience, the best place to find this information is Entrepreneur.com. There you can search for any franchise opportunity provider and view a profile that details their growth over the last 5 years, as well as franchise agreement terms and other facts.
Average Sales
Is this going to be a profitable franchise? What kind of profits can I expect?
This is probably one of the first questions you’ll be asking when you start your research after a franchise opportunity comes before you, although, unfortunately, the answer can be tough to find. Franchisors/company are not required to tell you the average sales per unit, and many choose not to since inaccurate earnings claims can be grounds for litigation. If they do release this data, however, it will be in Franchise Disclosure Document (FDD).
Let’s say the information is not available, or you’re just not at the stage of flipping through FDDs. Where can you go to find sales information? A simple Google search can do wonders. In particular, blogs by Indian franchise association will give out important facts and figures.
If you’re looking for a
franchise opportunity in the food industry, QSR Magazine has financial profiles of the top 50 restaurant chains. You can break it down by category (Burger, Sandwich, Chicken, etc.) and compare their average sales per unit, number of units, system-wide sales and other variables (pictured above). You can also look at previous years to figure out if stores have been improving or doing worse. This analyzation is an important aspect while consideration of franchise opportunity/opportunities.
Rate of Success
What percentage of new franchisees succeeds?
Again, this is not something franchisors are required to disclose, but it’s certainly good to know before you get too far into a relationship. According to statistics from the Franchising Association of India, franchises currently account for only two percent of retail revenues in India compared to almost 50 percent in the US. However, that two percent is growing at a fast pace, and the implications point to astounding market potential. The success rate for individual franchise business owners in the US is 92 percent, and since franchise businesses are based on proven systems, the success rate for Indian franchises should be comparable.
Continual Support
Once you go ahead with the
franchise opportunity in front of you & get associated with the company, it is necessary to see what’s the level of support you will receive from the franchisor? In other words, how much training and ongoing support do you get for things like marketing, client acquisition, advertising, recruiting and litigation? Unlike the other questions, this one is not all about the numbers. Nonetheless, it can’t have much of a huge impact on the profitability of your business, especially as you’re first starting out.
Fortunately, this is all detailed in the Franchise Disclosure Document lists franchisor obligations, from training to advertising and more. This is key because you’re only entitled to support that’s actually outlined in the agreement. Unless present in the document, any promises made verbally during meetings are unofficial. Also, you need to look out for qualifying words like “at our discretion” or “as required.” This means it’s up to the discretion of the franchisor when to give you help, and their definition may be a lot different from yours.
Pivot Point: Is This a Profitable Franchise Opportunity?
Taken all together, you can get a pretty good idea of whether or not a franchise opportunity is good or a bust. Once you’ve identified a great
franchise opportunity,it’s time to consider financing options, human resource management & location selection. Remember your analysis and understanding of the factors is critical.