Important things to consider when assessing franchise opportunities
If you are thinking of starting a franchise business, you must assess which proposition is right for you. There are many important aspects to take into consideration.
It may be useful to ask for guidance from other franchisees, on the running of franchises and dealing with franchisors.
Having carefully reviewed the franchisor’s terms and conditions with the help of your accountant and solicitor, you should consider the following points before signing a Franchise Agreement. 1. Financial aspects: • The total cost of the franchise establishment and operations • Amount of working capital for starting the franchise • Additional costs • Availability of finance from franchisor • Deposit amount required to be paid to franchisor • Frequency of replacement of equipment • Gross margin expectations • Projection for break even
2. Fees: • Initial and ongoing fee and method of calculation • Charges, if any, to be paid for marketing and advertising • Minimum ongoing fees if any
3. Starting business: • Who will arrange the location? • Time lag between signing of agreement and actual starting of business • Initial services provide by the franchisor • Initial and ongoing training inputs from franchisor, and charges if any
4. Business operations: • Hours of working • Accounting and record keeping procedures • Any restrictions on sale of product • What is the communication system between the franchisee and franchisor?
If you take the above points into consideration you will have a fair estimate of actual investment, cost of running the business and the revenue it will generate. Adding all these estimates you will know how much you can profit and whether these franchise opportunities are right for you.