When purchasing a retail franchise, there are key aspects to identify that will enable you land the best deal possible. With the innumerable business models available to you, it can be overwhelming to choose the franchise best suited to your goals and objectives. By examining specific characteristics of the business model, you can narrow down the selection considerably and make a wiser investment choice.
1. Return on Investment (ROI)
The single most important factor when purchasing a retail franchise is analyzing the ROI potential of the company. The ROI can be roughly calculated by dividing projected annual profits by the total investment costs. For instance, if you initially invest $10,000 and earn $15,000 the first year, then you earned $5,000 in profits. Divide $5,000 by the $10,000 you initially invested, and you have a positive ROI of 50 percent. Compare the projected ROI of numerous franchises to determine which business model offers the highest potential for return.
2. Locally Relevant
No matter how successful a franchise may be, the only way to guarantee its success is to secure an extensive clientele basis. Conduct research into your community to assess the need for such a business in your locale. Pick a business that provides a product or service that is of value to your community and one that will have minimal competition within the region.
3. Franchise Support
By investing in a franchise with ample franchiser support, you can experience a higher success rate and a better return on investment. One of the advantages of operating a franchise is that you are enacting a business plan with a proven history of success. As such, it will benefit you to adhere to the business model closely, and if the franchiser is willing to provide training and materials, it will greatly improve the success rate of your branch.
4. Past Litigations
Thoroughly research all past litigations of the company. The Federal Trade Commission (FTC) requires all businesses to surrender copies of their Uniform Franchise Offering Circular (UFOC). This document details all aspects of the franchise’s history, including any lawsuits that have been filed against them. Keep in mind that all businesses may experience a lawsuit from time to time. Some lawsuits are frivolous and don’t necessarily reflect badly on a company. However, if the franchise has an extensive history of litigations, it’s likely they engage in unethical or negligent business practices.
5. Public Perception
Read all available reviews on the franchise prior to investing. A positive public image is critical to the success of a business. Businesses are known to change practices and product lines on a whim, and as a result, public perception can also rapidly fluctuate. Ensure that recent consumer reports still express a positive view of the business, so you don’t end up investing in a sinking ship.
Purchasing a retail franchise is a huge decision and one that requires thorough research and preparation. Prior to investing, you need to examine the return potential of the business, their history of litigations, and their overall rapport with consumers. By identifying core risk factors in advance, you can avoid hastily investing in a franchise with minimal opportunity for growth. Learn more about franchise opportunities to ensure you get the best deal available.
About the author:Stephan Baldwin received his B.A. from Lock Haven University of Pennsylvania in Interactive Design. He went on to start Traffic Media, a successful online consulting firm specializing in website design and marketing for real estate professionals in South Florida. Looking for a change in scenery, Stephan accepted the position of Marketing Director with Franchise Gator and moved to Atlanta where he currently resides. Stephan brings over 10 years of experience in UI design, SEM, SEO, email & affiliate marketing to Franchise Gator.