4 Tips for Picking the Perfect Franchise to Invest in

Franchising is an attractive way for entrepreneurs to start a business with a recognizable brand name, proven business model, and less risk, increasing their odds of success. Its little wonder then that by 2016 there were 1,300 franchisor companies and 12,000 franchisees registered by the American Department of Commerce, a testament to the franchising’s popularity. So what are some of the things you should consider before choosing a franchise?

1. Assess the Management Team

The management behind the concept is critical to the success of your franchise as they provide the functional expertise you need. Ask yourself whether you believe in their skills and vision. If you plan to invest early in a new franchise, ask yourself if the management can support you as the concept grows. You need a concept management team that will focus on helping you expand in your territory even as they take on more franchisees down the road.

2. Examine Your Skill Set

While you don’t have to get into a franchise based on what you were doing before professionally, it is a good idea to match your experience and resulting skill set to the franchise choice. A Wall Street investor who specialized in restaurant and hotel investments faces higher odds of success by buying into a fast food franchise than a car dealership for example. Choose a franchise that can leverage the knowledge and networks you have gained in your past area of specialization to start off on sound footing.

3. Assess Their Sales and Marketing Strategies

Buying into a franchise is buying into someone’s vision. You, therefore, need to be aligned on how the sales and marketing functions you will adopt, operate. Study the past campaigns in other territories with similar demographics to yours and ask yourself whether they will work for you. A good concept will not be as profitable if the pre-determined sales and marketing strategies are ineffective. Find out if the franchise holder has the resource capacity to run successful campaigns. The franchiser’s ability to advertise and market vigorously will affect your profitability.

4. Conduct Thorough Due Diligence

It goes without saying that you need to thoroughly check any potential franchise you’re interested in to learn the nuts and bolts of the business. The Federal Trade Commission (FTC) provides a due diligence guideline to prospective franchisees to help them better assess a concept’s viability. To derive the best value from this checklist, engage a business analyst and attorney to help you go through each item where necessary. The FTC also stipulates a franchisor should give you the Franchise Disclosure Document (FDD) 14 days before your signing a contract. Take time to study it in great detail.

Starting a business with a brand that consumers already know and trust significantly reduces your odds of failure. To pick the best franchise, match it to your skills and thoroughly vet the concept’s viability to protect your capital.

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