When looking into a company for possible franchising, look first of all into the product or service. Before you look into the details of their franchise program, understand the total concept first. What is unique about their concept? How is it different from the rest?
Before you become a franchisee, you should first become a customer. Do you like the product? Are they marketing an innovative product or service? Even if there are similar products in the market, what makes this company different? What makes them special? Is it the product quality? The price? The service quality?
Only after you have understood the concept and have become a satisfied customer should you begin to examine their franchise offering. If you are not sold on the concept, you will be hard-pressed to sell it to your future customers.
Find out what the initial investment amount quoted by the franchisor covers. It typically includes franchise fee, initial inventory, equipment, and renovation. Franchisees often need to allow additional capital. Other initial investment costs include training expenses, rent deposits, business permits and licences, grand opening expenses, and working capital. With these additional investment costs, will it take significantly longer to earn the investment payback than the time quoted by the franchisor in his franchise literature?
The cost of a franchise varies enormously from business to business. Upfront franchise fees range from $1,000 to over $500,000. What the franchise fee actually includes is another matter which varies between franchisors.
What type of support will the franchisor give? The franchisor can assist you in all stages of operating the business – site selection, lease negotiation, training, construction, procurement, grand opening planning, personnel recruitment, etc. After your outlet has opened, how often will the franchisor visit you for support? How often do you need to attend training programmes after opening?
The franchise agreement is the contract between the franchisor and the franchisee. It enumerates the rights and obligations of both parties in the relationship. It covers the beginning, the length of the term, the renewal provisions and the end of the contract.
Important provisions that should be examined in detail are the territory granted, fees and payment schedule, and conditions resulting in breach or eventual termination of the agreement. In most reasonable franchise relationships, the franchise agreement, once signed, is put away and the parties manage the relationship through mutually beneficial business practices.
Below is a checklist of questions for researching each franchise business:
Ask for a copy of the franchise agreement and the operations manual. Ask your lawyer to review the franchise agreement. Don’t forget that the agreement should always be equitable to each party; otherwise the franchise will not be successful.
Consider also the level of saturation in your targeted market. For example, in Thailand there are currently around 10,000 convenience stores. Of these stores, 7-Eleven has 3,750 outlets, Family Mart has 650, V-Shop has 800 and Freshmart has 300 stores. The deputy managing director of CP All Public Company Ltd, a subsidiary of the Charoen Pokphand Group and the master franchisor for 7-Eleven in Thailand, claims that the market will be saturated when there are 20,000 convenience stores in the country. 7-Eleven will limit their outlets in Thailand to 5,000.
Philip Wylie is the author of How to establish a successful business in Thailand and How to make a living in Paradise. He has an extensive amount of professional experience as a company director, business manager, and several other senior positions, in various countries around the world. He is a Fellow of the Institute of Chartered Accountants in England and Wales (FCA) and has an MBA (London). Fast Track Publishing: Philip Wylie
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