There are many elements to consider when choosing the right franchise opportunity. Not only do you want the franchise to be a good fit for you - you also need to work with a franchisor that's going to be around for a long time.
How can you find out if a franchise system is healthy? In the franchise book, The Educated Franchisee we believe in sharing knowledge. A little franchise education could be useful in this area.
One important measure is the system's pace of franchise growth.
Too Fast: Rapid franchise development may seem like a good thing at first but it is possible for a system to grow too quick. It is important to make sure the franchisor has the people and systems in place to thoroughly manage your training and on-going support. For example, if a system of 50 franchisees adds 30 additional franchisees in a year, the rate of franchise growth may be too fast.
Too Slow: If franchise growth is slow there could also be a problem. Why isn't the franchise attracting new people? Possibly there are concerns with the business model - problems that make it difficult for existing franchisees to succeed. When potential franchisees do 'validation calls' they may hear about problems and decide to look elsewhere for a business. Or perhaps the franchisor doesn't have the right staff and has to limit franchise growth. Either way, a lack of new franchisees may be a sign of an unhealthy franchise system.
Just Right: steady franchise growth over time is an indicator of competent management and a healthy system. One way to gauge regular franchise growth is to check the pace at which the franchise grew every year both in absolute and percent terms. To determine this data for the past three years you can look in the Franchise Disclosure Document under Item 20 - the List of Outlets. All the data you need regarding franchise growth will be there for you in a clear, easy to understand format.
Rule of Thumb for Most Franchises: As a rule of thumb for medium-sized franchisors, the number of franchisees added each year should be between 10% and 35% of the total number of franchisees. For example, a company with 100 franchisees should have the infrastructure to add up to 35 new franchisees in the coming year.
Rule of Thumb for Large and Small Franchises: This method doesn't work for very large or very small companies, however, so when studying behemoth or boutique franchise systems consider the ratio of operational support personnel compared to new franchisees. A ratio of one support person for every 10-20 new franchisees tells you that new franchisees are probably getting the preparation and support they need to succeed.
Talk to Franchisees: But don't presume! It is critical that you talk to existing franchisees. Find out about the training they received initially and what they get in terms of on-going support. Do they find the staff to be experienced? Responsive? Does the franchisee feel comfortable calling on them for help? Pay particular attention to the information you glean from new franchisees. Your experience will most closely reflect theirs.
Meet the Support Staff: Generally, a serious franchise investigation finishes with a visit to the franchisor's headquarters to get final questions answered and meet the staff face-to-face. Spend extra time with the support staff. Make sure you are comfortable with their experience, competence, style, and ability to communicate, because you will need to work well with them and trust their advice on an on-going basis.
There are a lot of things to consider when researching a franchise business that will match your needs, but it doesn't matter how much you like the business if the franchisor isn't viable. Gather the franchise information you need and be certain the system you choose is growing and has a good number of satisfied franchisees. Franchise growth is a key part of your due diligence. Only a healthy franchise opportunity can support your long-term growth and success. - 16747
How can you find out if a franchise system is healthy? In the franchise book, The Educated Franchisee we believe in sharing knowledge. A little franchise education could be useful in this area.
One important measure is the system's pace of franchise growth.
Too Fast: Rapid franchise development may seem like a good thing at first but it is possible for a system to grow too quick. It is important to make sure the franchisor has the people and systems in place to thoroughly manage your training and on-going support. For example, if a system of 50 franchisees adds 30 additional franchisees in a year, the rate of franchise growth may be too fast.
Too Slow: If franchise growth is slow there could also be a problem. Why isn't the franchise attracting new people? Possibly there are concerns with the business model - problems that make it difficult for existing franchisees to succeed. When potential franchisees do 'validation calls' they may hear about problems and decide to look elsewhere for a business. Or perhaps the franchisor doesn't have the right staff and has to limit franchise growth. Either way, a lack of new franchisees may be a sign of an unhealthy franchise system.
Just Right: steady franchise growth over time is an indicator of competent management and a healthy system. One way to gauge regular franchise growth is to check the pace at which the franchise grew every year both in absolute and percent terms. To determine this data for the past three years you can look in the Franchise Disclosure Document under Item 20 - the List of Outlets. All the data you need regarding franchise growth will be there for you in a clear, easy to understand format.
Rule of Thumb for Most Franchises: As a rule of thumb for medium-sized franchisors, the number of franchisees added each year should be between 10% and 35% of the total number of franchisees. For example, a company with 100 franchisees should have the infrastructure to add up to 35 new franchisees in the coming year.
Rule of Thumb for Large and Small Franchises: This method doesn't work for very large or very small companies, however, so when studying behemoth or boutique franchise systems consider the ratio of operational support personnel compared to new franchisees. A ratio of one support person for every 10-20 new franchisees tells you that new franchisees are probably getting the preparation and support they need to succeed.
Talk to Franchisees: But don't presume! It is critical that you talk to existing franchisees. Find out about the training they received initially and what they get in terms of on-going support. Do they find the staff to be experienced? Responsive? Does the franchisee feel comfortable calling on them for help? Pay particular attention to the information you glean from new franchisees. Your experience will most closely reflect theirs.
Meet the Support Staff: Generally, a serious franchise investigation finishes with a visit to the franchisor's headquarters to get final questions answered and meet the staff face-to-face. Spend extra time with the support staff. Make sure you are comfortable with their experience, competence, style, and ability to communicate, because you will need to work well with them and trust their advice on an on-going basis.
There are a lot of things to consider when researching a franchise business that will match your needs, but it doesn't matter how much you like the business if the franchisor isn't viable. Gather the franchise information you need and be certain the system you choose is growing and has a good number of satisfied franchisees. Franchise growth is a key part of your due diligence. Only a healthy franchise opportunity can support your long-term growth and success. - 16747
About the Author:
This article was written by Rick Bisio, a franchise specialist who is dedicated to franchise education. Rick's objective is to create educated franchise buyers who have well defined ideas and can recognize a good franchise opportunity. Visit the Educated Franchisee for a free monthly newsletter and more information.
