There are a ton of franchise opportunities out there. How to decide which one is the perfect fit for you? Use the following checklist to help you find the right concept that for you. The franchise that will help you realize the financial and lifestyle rewards of ownership.
1. Return on investment (ROI)/initial investment. How much money can you make for this investment and what are the inherent risks of this franchise investment? ROI is directly related to the inherent risks of a particular franchise investment. If the ability for an investment to generate predictable returns is less certain, the risk is consequently higher. Request the average initial investment so you can project ROI.
2. Item 19 Financial Performance Representation on the FDD. How much money can you make? Candidates should know, the average unit volume (AUV), average overhead (rent, utilities, etc.), and average operating costs (food, paper, labor, etc.) to help compute net operating income (NOI). If this information is not included, ask why.
3. What is the success rate of this franchise? To find this rate divide the number of closures by the number of franchises open for business. You should know how many units have closed and the reason for their failure. This is item 20 on the FDD.
4. Cost and fee structure. Are there any hidden fees? You need to identify all fees and costs associated with a franchise, including initial fees, continuing fees, equipment and food costs, post-term fees, advertising fees, penalty fees, and hidden fees and costs. Hidden fees and costs usually indicate franchisor profit from food or equipment purchased by franchisees. Find out if the franchisor profits from purchases made by franchisees, in the form of vendor rebates.
5. History of litigation. Has this franchisor been sued before? Be wary of franchise systems with a long history of litigation. All litigation is listed in the FDD.
6. Support and infrastructure. What kind of support do they offer you? Compare all support areas: initial training, construction (if necessary), grand opening support, ongoing support, marketing, technology, and so on. The more support you receive for the initial franchise fee and ongoing royalty fees, the better.
7. Franchisee communication. How easy are they to talk to after you are in? Study the relationship between the franchisor and franchisee. Item 20 on the FDD gives you the contact information of all other franchisees; use it. Contact current franchisees to discuss their satisfaction with the concept. Contact former franchisees to discuss why they left the system.
8. Product or service. Is the product and service superior to what is on the market and how did they do in the recession? A superior product and service with established and recession-proof market demand will increase your chances of success.
9. Systems and procedures. How do they achieve the consistency that consumers expect from a franchise? Customers like going to franchises because they know that they get the same product and quality service no matter where the location is.
10. Branding. Does the franchisor work harder to protect the integrity of the brand and to protect from litigation? The brand is a concept’s face to the world. It is the company’s name, how that name is visually expressed through a logo, and how that name and logo are extended throughout an organization’s communications. A brand is also how the company is perceived by its customers and the associations and inherent value they place on your business.
There is so much to think about when investing in a franchise. The checklist above is just a start. You need to recognize that the lowest royalty doesn’t equal the most profit. If costs are higher because of rebates paid to the franchisor from your purchase then the lower monthly royalty is negated. You need to look at the small picture and the big picture.
Whatever franchise you choose or if you decide to open your own yogurt shop or quick serve restaurant Calypso has the point of sale software systems and cash registers pos equipment for your business. We offer complete turn-key solutions. Calypso’s point of sale system has built in QuickBooks integration, kitchen video displays, inventory management, barcode scanning, digital surveillance integration, employee time clock and a labor scheduling module. Contact Calypso today at 800-771-7100 to get started!