Business Planning Articles Business Growth Articles Business Management Articles Business Finance Articles Business Financials Articles
Business Consultant Article Business Turnaround Article Business Leadership Article Business Compensation Article Family Business Article Franchise Assessment Article

Understanding Franchising – How to Determine if a Franchise is Right for You

Franchise Assessment

Utilizing a Franchise System can be a very effective way to open and operate a small business, especially for those without a lot of experience in operating and owning their own business. There are many advantages in using a Franchise System, such as, turn-key operations, marketing and business planning; large corporate support; lower learning curve; established accounting, cost control and management systems; brand identification; training programs; national and regional advertising; customer service programs; market trend responsiveness; supplier and vendor discounts; among others. However successful Franchise Systems are expensive: they consist of a franchise fee, royalty fees and start-up costs. So it is very important to have a due diligence system in place to determine if a particular Franchise Opportunity is right for you, and whether the costs to establish and run the franchise match the effectiveness of the Franchiser’s Package Offering.

Types of Franchising Systems

  • {Product/ Service and Trademark Franchising:}

This is an arrangement which the franchisee is granted the right to sell a well recognized brand. Most franchisees concentrate on one franchiser’s product/ service line, identifying their business with the franchise. Examples include: Automobile Dealerships, Gas Stations, Soft Drink Bottlers, etc. The franchiser exercises little control over the franchisee’s business, with the product/ service integrity being the biggest concern of the franchiser.


  • Structure & Responsibilities:

Standardized Product >

Franchiser                                                    Franchisee


< Pays Franchise Fees


Franchisee Responsibilities:

  • Marketing
  • Training
  • Control System
  • Operating System
  • Accounting System
  • Building, Equipment, Signage
  • {Business Format Franchising:}

Franchisee is granted the right to use a turn-key marketing system, with substantial assistance and guidance from the franchiser. Types of franchises include Restaurants, Retail, Hotels, Business Services; Automotive Products, Parts and Services; Convenience Stores; Entertainment Centers and so on.

  • Structure & Responsibilities:

Franchiser                                        Franchisee

Building Plans——————————–>

Equipment & Signage———————–>

Marketing System—————————->

Business Plan———————————>

Operating System—————————–>

Training Personnel—————————->

Accounting System—————————>

Control Systems——————————>





Determine if a Franchise Opportunity is Right for You

  • {Franchise Checklist}
  • The Franchise:
  • Has your attorney approved the franchise contract?
  • What legal grey areas have been identified?
  • Will you have exclusive territory?
  • Does the franchiser work with any other franchise handling similar products and services?
  • What are the Franchise Contract termination penalties?
  • If you sell your franchise, will you be compensated for goodwill?
  • The Franchiser:
  • What is the franchiser’s number one focus?
  • How have franchisees in the past run into trouble? Difficulties?
  • What skills franchisees need most?
  • How are conflicts resolved?
  • Request the bios of Top Management. Do they have entrepreneurial backgrounds?
  • Do the franchiser’s earnings claims differ from their Franchiser Disclosure (FDD)?
  • Has the Franchiser executed detailed due diligence on your qualifications?
  • How many years has the Franchiser been operating?
  • Does the franchiser have a reputation among the franchisees, competitors and business world for honesty, integrity, accountability and fair dealing?
  • Has the franchiser shown you certified and audited financials on franchisees in your region and area which you can validate?
  • Does the franchiser provide Executive Management and Personnel Training Programs?
  • Does the franchiser provide any Capital or Credit?
  • What merchandising Programs and Training does the franchise offer?
  • Will the franchiser assist with site location?
  • Does the franchiser have adequate financing to implement its Franchisee Plan?
  • Does the Franchiser have a highly trained and experienced management team?
  • What can the Franchiser bring to the table which you can’t adeptly do yourself?
  • Has the franchiser complied with State Laws in the past? What State Laws are in place regarding Franchise Sales?
  • The Franchisee:
  • How much Equity Capital will you need to:
  • Purchase the Franchise?
  • Operate until Break-Even?
  • Where will you get the Equity Capital…

This article is an excerpt of a Chapter from our Business Success Guide. For the rest of the Chapter, please visit:  The Business Success Guide

The remaining major sections of the book’s Chapter have been left below as an outline so you can get an idea of what else is contained in this Chapter of the Business Success Guide.



  • The Market:
  • {Examine Franchise Opportunities:}
  • {Determine What the Franchise Can Do for You:}
  • Typical Franchiser Services:
  • {Franchise Due Diligence:}

Examine more than one franchise and compare/ contrast through a standardized checklist (see previous section). Investigate franchises in the same line of business…

  • {Talk with Existing Franchisees:}
  • {Seek Professional Advice:}
  • {Understand your Legal & Ethical Rights:}
  • {Analyzing & Understanding the Franchise Disclosure Document (FDD):}
  • Overview:
  • Background:
  • Items #1-4: History:
  • Items #5-7: Fees & Costs:
  • Items #9,11 & 15: Contractual Obligations:
  • Item #12: Territory:
  • Item #17: Exit Strategies & Dispute Resolution:
  • Item #19: Financial Performance:
  • Item #20: Existing Unit Data:
  • Items #21 and 22: Financial Statements & Contracts:
  • Item 21: The Franchiser’s audited financials for the previous three years.
  • Item 22: Franchisee Contracts, including the Franchise Agreement and other contracts covering personal guarantees, real estate assignments, advertising, co-op rules and conditions, territorial development schedule, etc.
  • Other Important Rules, Restrictions & Information:
  • Items 8,10,13,14,16,18 and 23:

Summing Up

ABC Business Consulting has provided you a system to use in determining the efficacy of a potential franchise opportunity…