A franchise investment can be a better business opportunity for new entrepreneurs instead of launching a new startup. However, the widespread assumption that all franchise brands offer a business model that works if you raise the required capital investment is wrong.
Fransmart, the leading franchise development company for emerging brands, believes that potential franchisees must evaluate every franchise on its own merits and look towards new concepts rather than mature brands in order to make money.
“We are not interested in tired matured brands. We are interested in the next big thing,” said Fransmart CEO Dan Rowe. “We believe every franchise starts with one store and has the potential to become the next Five Guys.”
With the help of Fransmart, you can make the right decision on your first franchise investment. Here are eight things you should consider before investing in a franchise.
1. Find Out About Territory Mapping
Your rights to a territory must be outlined before you sign a franchise agreement, and it can vary depending on the location. A territory can be defined by size or population.
If you are concerned about a franchisor’s territory mapping process, you may consider asking them directly. Bear in mind that franchisors might only be able to offer you general information about the processes, but the results must be consistent.
2. Understand The Franchisee Restrictions
Restrictions on a franchisee’s conduct are typically outlined in the franchise contract. The most important restrictions to consider are the operational guidelines, such as being directly involved in daily business operations.
Breaking a franchisee’s rules may affect the franchisor’s decision to renew a franchise term.
It should be noted that first-time franchisees are not allowed to enter into any competing business interests except with the franchisor’s prior express written consent. These restrictions must be clearly defined in the franchise agreement.
3. Know The Company’s Litigation History
A franchise’s litigation history should be researched before signing a franchise agreement. A few low-priority court cases involving suppliers or disgruntled franchisees should be reviewed carefully. Conversely, a company with many lawsuits against its franchisees should raise concerns.
To decide how many lawsuits are “too many” is to consider the scale of the company’s operations. For example, a franchise as large as McDonald’s has landed in court, often based on unfair competition due to the expansiveness of its growth. However, emerging Fransmart brands such as Duff’s Cake Mix, Slapfish, Savannah Seafood Shack, and PayMore have no history of any lawsuits.
4. Understand Franchise Costs
You must know the minimum financial requirement for buying a franchise and develop a more comprehensive view of all the costs involved. The Franchise Disclosure Document (FDD) can help you see these expenses.
A new franchise can require high operating capital when it launches, and you will have to keep investing in your business until it becomes profitable. Therefore, it is better to anticipate your operating costs six months after launch and to save up enough capital to cover your business and personal living expenses for at least a year before buying a franchise.
5. Use a Franchise Consultant
Many franchisors use franchise consultants like Fransmart to help them market their franchise business. These consultants can help new franchise owners with every step of the franchise process.
Fransmart is one of the best franchise development companies in the US. With over 5000 stores opened in 20 years of operation, Fransmart has worked with fast-dining casual restaurants such as The Halal Guys, Ike’s Love and Sandwiches, Rise Southern Biscuits and Chicken, and technology retail stores such as PayMore. The versatility of franchise business consultants like Fransmart makes them ideal for your new franchise investment opportunity.
6. Learn Your Renewal Rights
A franchise’s renewal rights should be of particular interest when looking to invest. Some franchisors repeatedly offer renewal rights to franchisees, while some may offer no renewal rights. You should find out about the initial franchise term, renewal term, and the number of renewable times.
Non-renewable franchise opportunities should pose a concern to any investor looking at a long-term investment. Emerging brands, which make up the bulk of Fransmart’s portfolio, offer renewal rights and extended franchise periods.
7. Know Your Multi-Unit Franchise Rights
Multi-unit franchising allows businesses to invest more to generate more wealth. Multi-unit franchising should be a priority for you, even if you don’t have the money to buy multiple franchise units at the beginning of your franchising journey.
Multi-unit franchising is the way to make true wealth in franchising. Profits from initial stores are reinvested and self-fund new locations.
Fransmart encourages multi-unit franchising because it is the best franchise path for both franchisee and franchisor. All of Fransmart’s brands offer multi-unit deals.
“I bought the rights to five stores in The Halal Guys franchisee,” said Khurram Burney. “The one thing I wish I had done was to buy more territories from the start.”
8. Know The Term Expiration Implications
Many franchise agreements state that the franchisor has the right to acquire assets at the end of a franchise agreement. There’s nothing wrong with selling your franchise back to the franchisor, if the price is considered fair, equal, or above what you originally paid for it.
Review the specific terms of the franchise company’s acquisition of your business. If the franchisor’s formula to set the acquisition price offers a depreciated value, you should take that as a warning sign.
Franchising is an attractive investment opportunity. If you’re ready to begin your franchise journey, contact Fransmart today.