1. Check if it is a proven business model?
“Recruiting working partners for a limited or predefined geographical location for a successful business model”. This is the true definition I give for franchising.
The success rate of franchises is drastically going down as innumerable players are rushing into the market and trying to sell not proven business models. Sales guys are always smart, they have their own targets and will always try their best to pull your cheque. If you are not prepared well, it’s not just the Capex, you will end up bleeding bad as your overheads follow till you break even. Double check whether it is a proven business model and go ahead only if you are 200% convinced of it.
2. Does the ROI look realistic?
After the initial discussion with the brand, follows a rosy ROI to your inbox, don’t blindly believe in it as it always carry unrealistic figures, try putting some brains and math on it, maximize the overheads and minimize the returns, try to arrive at a cut-throat figure, if you still see it on positive side, go for it.
3. Visit few successful units at business hours
I have seen thousands of leads who visit existing units just to have a feel of it, this will not serve the purpose, you have to get into numbers, ask for the cash flows of most successful units, visit those units at business hours/season, spend some quality time and validate the actuals, if you are not convinced, get back to the franchisor and ask for more data, keep doing it till you get your answers.
4. Get marketing support in writing
Visit few unsuccessful units of the franchisor and try talking to them, in most of the cases their complaint would be on marketing support, many times franchisor don’t keep their marketing commitments. Ensure the marketing commitment in the agreement is win-win for both of you.
5. Try selling the product/service to your friends and neighbours
If you cannot convince your friends and neighbours to buy your product, strictly don’t go for it. Also, try selling this to your target customers and gather their opinions.
6. Take legal advice
You always throw lavish and rich parties on inauguration but too concerned to pay to the attorney for a legal advice, you later run to them when you are in a fix. Always take a sound legal advice before signing any kind of contracts.
7. Ensure you have working capital till you break even
“That’s Okay if I can just arrange my Capex, I would easily generate cash flows from the first month which would at least meet my monthly overheads.” Many who fail in business would have for sure followed this strategy. Be very cautious, always calculate your break-even period and ensure you bring sufficient funds into your bank to survive till you break even irrespective of your cash flows.