ENTREPRENEUR’S GUIDE TO BUYING A FRANCHISE: TOP 5 QUESTIONS TO ASK & THEIR ANSWERS

September 16, 2017
Godwin Vargheese
Franchise guide

Franchise guide

For a budding entrepreneur, buying a franchise is like a golden ticket to becoming a successful businessman. One, you don’t have to create a business from scratch; and two, it’s almost 95% failure proof if you invest in the right model.  (Forbes, 2016) The question is whether you are choosing the right model to invest in as per your strength areas and whether you are asking the right questions to do so. Don’t worry. We have compiled a list of the top 5 questions to ask before buying a franchise to ensure that you always stay within the top 95% of franchise owners.

franchise

Have you studied the market trend?

Simply focusing on the current market size of the potential industry does not guarantee a 100% success rate. The investor must study the current phase of the growth rate that an industry is in. Even if it’s a large market, if it’s already reaching maturity, chances are that it’s saturated. A budding industry like education with so many growth opportunities along with a high positive CAGR for the past years, on the other hand, is a sure shot guarantee of the right market trend.

What is the penetration rate and territory coverage?

Oversaturation of an industry is again a red flag. So you must ensure that the industry of your choice hasn’t spread itself too thin and there’s still a lot of scope in terms of expansion and penetration rate and that there is limited competition. Once again, the education sector is a top choice since it’s still underpenetrated, there would always be consistently high demand and STEM education a key focus area for both the government and the parents.

To what extent does the company support extend?

When you’re signing up to buy a business franchise, success rate largely depends on the level of support that the franchisor is extending in terms of setup, training, building brand value, marketing, in-field support etc. And if a company is reputed and supportive on all these fronts, then it’s the right company to work with.

How flexible is the exit strategy?

It’s very important to have complete clarity regarding each other’s expectations when buying a franchise. No contract runs indefinitely. So the terms, costs, and conditions of going for a renewal should be transparent right from the beginning and the exit strategy clearly laid out in case either of the parties wants to part ways.

Buying a franchise

Are you investing in the right business model?

Last but not the least, having a proper business plan in mind is important while simultaneously ensuring that the plan and the sector in which the franchise operates in go together. You have to be clear about the model you’re planning to invest in, your budget, ROI and break-even period to set thorough expectations.

Once you have checked the correct boxes as per the above checklist, you are good to go on your road to becoming a successful franchise owner.

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