Franchisee checklist - assessing the business proposition
Financing the business
- What is the total cost of establishing a franchise operation?
- What is included in this cost?
- How much working capital is required?
- What costs will be incurred in addition to the cost of establishing the business?
- What financing arrangements are available and what are the repayment terms? Will security be required?
- Is there a deposit? If so, will the deposit be forfeited if the venture does not go ahead?
- How soon will the franchisee have to spend money on replacing equipment or refurbishing the business? How often in the past has re-equipping or refurbishment of franchise units been required? How much did it cost?
- What gross margin can be expected from the business?
- What are the expenses associated with the business?
- What level of turnover is required to break even?
- Are accounts available to confirm these projections?
- What is the initial franchise fee?
- What are the on-going fees and how are they calculated?
- Is there an advertising/marketing levy? How much is it?
- Does the franchisor have a mark-up on product sales to the franchisee? If so, how much is it and what protection does the franchisee have against unfair price increases?
- Does the franchisor take commission from suppliers of goods or services to the franchisee?
- Is the franchisee obliged to pay a minimum on-going franchise fee or purchase a minimum amount of goods?
- Who finds the location; is it the franchisor or franchisee?
- What is the franchisor's procedure for preparing the franchisee for starting operations?
- How long will it take from signing an agreement to opening the business?
- What initial services are provided?
- What will the initial training include and how long will it last? Does the franchisor provide training for the franchisee's staff?
- Who pays for training?
Operating the business
- Does the franchisor provide an operations manual?
- How often will it be updated?
- What will the business's opening hours be?
- How will accounting and record-keeping be managed?
- What restrictions will there be on products sold by the franchisee?
- What national advertising and promotional support does the franchisor provide?
- What help will the franchisee receive with local advertising and promotion? What point-of-sale and promotional literature is provided?
- How much does the franchisee have to pay for promotional material?
- Who are the head office team and field support staff? Is it possible to meet them?
- What other systems are there for franchisees to communicate with the franchisor and each other?
Answers to the above questions should be provided by you in your business plan. Do not use a business plan prepared for another location and adapt it with minor changes. One of the advantages of franchising is the fact that other people have tried and tested the concept. You do have a template to work from but you must refine and develop your information for the specifics of your own location.
The franchise agreement forms the foundation of the relationship between franchsor and franchisee. It incorporates all the obligations of the franchisor and franchisee, the rules governing the way the business is conducted and the operational procedures and controls to be used in the business.