Most franchises have been on the market long enough to prove their mettle. With tried and tested brand identify, marketing strategy, and management techniques, you’d be forgiven for thinking you need to do less due diligence before buying one of our franchises. Fortunately, most of the information you need is packed into one convenient place: your franchise disclosure document (FDD). The rest of the data you need is easy to track down.
YOUR FRANCHISOR
Your FDD outlines the history and background of our franchise brand, its partners, and its trade parent. We provide the growth trajectory of the brand as compared to the relevant industry’s growth to arrive at a realistic view of its potential success. Check the litigation history, including any class action suits by previous franchisees and clients. Lawsuits shouldn’t exceed a ratio of 2% per outlet. A history of bankruptcy is a sign that all is not right with the franchise you’re researching.
MARKET SHARE
Finding a balance between a successful, developed brand and a flooded market is a challenge we’d like to help you overcome. You need to know if the system is still growing and whether there’s room for more outlets in your area. If there’s already an outlet on every corner of your city, you’d likely enjoy better success in a different area. You also need to know the termination ratio, which will indicate how happy other franchisees have been with their profits and business model.
Franchisors sometimes put a limit on the number of outlets allowed in an area. This is to try and give every franchise enough room to succeed, leaving your business secure even years after you bought it. Not all are ethical enough to put this limit in place. These are brands that are focused on the number of sales they make rather than the total revenue they produce, which is far from ideal for franchisees.
INITIAL INVESTMENT AND FEES
Your FDD outlines your initial franchise fee and any other amounts you’ll have to pay for launch advertising and the like. Look into any extra annual fees and whether you’re free to close your business without paying extra. None of these figures will make sense until they’re compared to similar brands in the same industry, so do your research and keep in mind that brand value costs money because it delivers on profits.
Other expenses might include:
- Royalty fees
- Software licensing costs
- A percentage of receipts
- Training costs
FINANCIAL STATEMENTS
Where we’re making our money speaks volumes about how positive your experience with us will be. If most of a franchise’s revenue is generated from royalties, they’re doing well, but if the majority of their income is based on the sale of franchises, you might soon find yourself in financial dire straits.
Franchisors aren’t required to include their profit forecasts and financial performance representations, but their inclusion is a good sign. This information is critical, and the only way to discover it without an FDD is by researching individual franchises yourself.
EXCLUSIVITY AND RENTALS
We understand that location is everything in the business world. You won’t always be lucky enough to receive an exclusive location, so research your potential competition, both from within the same franchise and from rival brands.
PROBLEM SOLVING
Our dispute resolution process determines how happy you’ll be from day to day. Make sure any arbitration and litigation occur in a state you can easily travel to.
Franchising is an exciting way to take your destiny into your own hands. If the idea of entrepreneurship excites you, Samurai Sam’s® gives you a solid foundation and a business model that works.
