Here are some vital points every franchisee should know before signing a franchise agreement.
- 1.Credibility of the brand - A credible brand should be around for at least five years or more. Find out how long has it been franchising. In case it is the subsidiary of another company, research well about the parent company.
- 2.Financial Stability - Reviewing recently audited financial statements will reveal their exact financial stability.
- 3.Core team - Know their core management team, their standing with the local Chamber of Commerce, their credibility with franchisees and customers.
- 4.Future plans - Know about their future plans for further development, expansion, diversification and its possible impact on your business dealings.
- 5.What you sell - Product orientation is the next most important aspect of choosing a franchise. As a potential investor you should know and like the product/ service yourself before you start selling it. First question you ask is that will I buy the product or service on its own merits? Is there a demand for this product within your territory?
- 6.Competitive Edge - Evaluate the USP, market demands, growth potential of the product. Evaluate parameters such as the federal/local standards and regulations, product warranties, trademark or copyrights of the product.
- 7.Exclusivity of territory - Location plays a major role in a product or service oriented business. Find out why the location is ideal for the business. Does the franchisor allow other franchisees to open shop in the same vicinity? What is the possibility of your sales territory being expanded or contracted?
- 8.Demographic Analysis - It is important to have the whole demographic data projection for the next five years. You should have the data detailed out in terms of age, income and occupation of people in your area.
- 9.Existing franchisees’ feedback - The existing franchisees will give you the real picture. Ask them if there are any hidden cost, price/quality ratio, consistency and quality of product delivered by the franchisor, expected breakeven. Ask them if their franchise has been as profitable as they expected.
- 10.Dispute Handling - Ask the existing franchisees about how the company deals with disputes and disagreements. Do they have an amicable approach towards it? Are they responsive towards the queries of the franchisees?
- 11.Creative Freedom - Is the brand open to suggestions? Is the contribution of the franchisee adequately acknowledged and appreciated?
- 12.Pay attention to the Franchise Contract - Before you sign the dotted line, read and re-read the franchise contract to find out if the contract protect you and the franchisor. The rights, obligation, type/ size of the operation and financial terms of both parties should be clearly stated.
- 13.Sourcing the Merchandise - Find out if it is mandatory to source merchandise from the franchisor or supplier recommended by them. What is the minimum merchandise you must purchase? What is the dictum followed in case of interrupted supplies.
- 14.Sales target - It is important to find out sales target as well as their viability. Learn about how to represent the report to your franchisor.
- 15.Innovation or not - Do you have the right to the franchisor’s latest innovations? How will that impact your business?
- 16.Money matters - Get to know in detail about the franchise fees, fixed yearly payment if any, royalty, payment related to the gross sales and fees for continuing services provided by the franchisor. Will the franchisor maintain any federal and provincial registration?
- 17.Legal, compliance and contractual issues - Evaluate the legal track record of the franchisor. Check list also include their license/ permits, existing contracts such as leases and mortgages, especially on business premises and the restrictions on selling, staffing, pricing and supply arrangements?
- 18. Support in site selection - In order to be aligned with the vision of the brand, it is important that you get a proper hand holding from the parent company. Find out in details about their assistance in site selection, lease negotiations and store layout.
- 19.Skill Support - Find out if the franchisor provide or help in acquiring skilled staff for your business. Also it is important to know how the ongoing trainings conducted.
- 20.Marketing Initiative - Are your business made to be a part of all the centralised marketing initiatives. At what intervals are these activities carried out.
Related: Know- how to franchise your business
