1. Check if it is a proven business model?
The true definition for franchising in my view is “Recruiting working partners for a limited or predefined geographical location for a successful business model”.
The success rate of franchises is drastically falling down as innumerable players are rushing into the market and pushing not proven business models to franchisees. Sales guys are always smart, they have their own targets and will put their best efforts to pull your cheque. If you are not prepared well, it’s not just the Capex, you will end up draining all your savings in the long run as the overheads follow till you break even. Double check whether it is a proven business model and go for it only if you are 200% convinced of it.
2. Agree on a realistic ROI
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 the positive side, go for it.
3. Visit some successful units during the business hours
I have seen thousands of prospects visiting existing franchise units just to have a feel of it, this will not serve the purpose, you have to get into numbers, ask the franchisor 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 a few unsuccessful units of the franchisor and try talking to them, in most of the cases their complaint would be on marketing support, in many cases franchisors doesn’t keep their marketing commitments. Ensure the marketing commitment is added in the agreement and it should be a win-win for both the franchisor and franchisee.
5. Try selling the product/service to your friends and neighbours first
If you cannot convince your friends and neighbours to buy your product, strictly don’t go for it. Also, try selling it to your target customers and gather their opinions.
6. Take legal advice
People always throw lavish and rich parties on the inauguration but too concerned to pay even a little money for legal services, there’s no point in opting a legal advisor after things getting worst, instead, take a piece of sound legal advice before signing the franchise agreement.
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 and know your realistic break-even period and ensure you bring sufficient funds into your bank to survive till you break even irrespective of your cash flows.