5 Qualities to Look for in a Franchise

The franchisor and franchisees have a love-hate relationship. They cannot live with each other and cannot live without. While there are certainly benefits to “going the franchise route” when buying a small business, particularly for first-time buyers, selecting a wrong franchise can hurt you and may even wipe out your hard earned savings.
So how do you know if the franchise you are considering to get into is a good one?

While there is no magic formula below we have listed 5 qualities you should look for to see if you are going to be successful with the franchise.

The franchise is growing
A growing franchise is a sign that the concept they have is good and has further potential. Customers like what the franchise has to offer. The franchise management is paying attention and is interested in taking the concept to the next level. Also, as the number of locations increase the overall cost to each franchisee will come down as a result of economies of scale.
The opposite is true of the franchise where number of franchisees is closing the doors or selling. Now, there is always a turnover in franchise business and if the number of stores closing or being sold is in the normal range you can blame it on operators. However, when you hear about this from every corner that certainly is a red flag and you need to avoid getting into at all cost.
The franchisor introduces new products and services regularly
Franchising is a competitive business. New concepts are being introduced practically every day. The franchisors need to continue to innovate with their products and services to stay ahead of competition or at least keep up with it. If they don’t they will feel the impact on their business. It may not happen overnight; but it will lead to the decline and eventual demise of the franchise.
Subway has mastered the art of new products and services in the last 10 years. After starting out with healthy sandwich concept they have periodically introduced new products such as breads, sauces, salads, pizza and so on. When Quizno’s started to encroach on their business with hot sub; they introduced over toasted subs and maintained their lead.
The franchisor does not have unreasonable expectations about store operations
Many times there is a lot of tension between the franchisor and franchisee in terms of how the store should be operated. Franchisees do not want too many rules and regulations because that leads to more expense; while franchisor wants to ensure that the formula that made them successful is followed to the minute detail.
Our view is that the franchisor should not put unreasonable burden on the franchisee; while at the same time have policies and procedures that help them maintain the integrity of the brand and the concept. Failing to do so will not help either the franchisee or the franchisor.
The franchisor aims for the balance between franchisor growth and franchisee growth
The franchisor should understand that their success is dependent on the success of franchisees. They should not be milking money at the expense of franchisees. Some the signs that this may be happening are – they are opening too many stores in close proximity (we are hearing many complaints from Subway owners on this lately); charging a high price that is above market rates for commissary purchases or has a high royalty and ad fund fees.
The franchisor should listen to franchisees instead of running it like a dictator
In our view franchisees are in the best position to know what is working and what is not. After all, they are in contact with the customers every day. If the franchisor is not listening to them and taking appropriate actions they are doing disservice to the business. The franchisor should have regular meetings with franchises where they are listening to their feedback and acting on it.