How to Research and Evaluate a Franchise Opportunity

A Step By Step Guide to Finding the Right Franchisor

Investing in a franchise and becoming a franchisee is an exciting step for prospective entrepreneurs. So much so, that it’s easy to get swept up in all of the excitement and overlook some important steps along the way.

Researching and thoroughly evaluating a franchise opportunity, for example, is one of the most crucial steps in determining whether the franchisor is a good fit and if there is potential for long-term success. For this reason, it’s so important to do your due diligence and complete several important steps that will help you determine whether or not a franchise is worth investing in. Keep reading to find out what these steps are.

Conduct Market Research

Market research refers to the process of gathering insights into consumer needs and preferences in your particular area and will help you determine whether or not your particular franchise will be successful. This process is essential when preparing to start a franchise, so be sure to focus your research on the specific geographical area where you plan to open the franchise. Find out what kind of demand exists for your product or service, look into your competitors and evaluate potential growth opportunities.

Review Franchise Disclosure Document

The Franchise Disclosure Document (FDD) is a legal document provided by the franchisor that contains crucial information about:

The franchise system
Its financial performance
Franchisee obligations
And more

Analyze the FDD thoroughly to understand the franchise’s history, costs, litigation history, and other important information. Pay particular attention to the franchise’s financials and look for the following:

Diverse Revenue Sources: Look for a breakdown of the franchisor’s revenue sources and see if there is a mix of income from franchise fees, royalties, and other sources. If the franchisor is relying on income from just one revenue stream like franchise and royalty fees, this could be a red flag.
Consistent Profitability: Evaluate how profitable the franchisor has been over the past few years and look for steady growth and margins plus positive trends in revenue and expenses as these are good signs that the franchisor is financially healthy and a good investment.
Low Closure and Termination Rates: Find out how many franchise closures and terminations have occurred in the past five years. A high closure rate could indicate there is a problem with the franchise system.

Speak with Current and Former Franchisees

A list of existing franchisees is often included in the FDD, so take advantage of this information and reach out to existing franchisees to gain insights into their experiences with the franchisor, the support and communication provided, profitability, and challenges they have faced. Additionally, contact former franchisees to understand why they closed their franchise as this can provide valuable insight.

Evaluate Training and Support

In order to be successful as a franchisee, it’s so important that you have access to extensive support and training resources from the franchisor. So, before you invest in a particular franchise, ask the franchisor and current franchisees about the types of support and training programs offered. There should be comprehensive onsite and virtual training available along with extensive ongoing support to help you succeed, so don’t settle for anything less.

Seek Out Legal Advice

Always consult with a franchise lawyer and an accountant and ask lots of questions about whether a particular franchise opportunity is a smart investment. Also have them review the FDD, franchise agreement, and financial information so they can clearly explain to you the legal and financial ramifications of the franchise opportunity.

Investing in a franchise is a significant life and business decision that requires careful consideration and due diligence to ensure you are making the right investment. Always take lots of time to research, evaluate, and compare different franchise opportunities to find the one that aligns best with your goals and values.

If you are currently going through this process and haven’t yet found the right franchise to invest in, consider a trusted and established franchisor like Gorilla Bins.

Gorilla Bins is Ontario’s leading waste management franchisor with several locations across the Greater Toronto Area.

Gorilla Bins offers its franchisees lots of training and support to help them be successful. We also have a track record of producing successful franchisees and have tripled our revenue over the past five years.

Get in touch with our team today to learn more about Gorilla Bins and how we can help set your franchise up for success.