4 steps to pick a top franchise opportunity

Want to pick a top franchise? It all starts with the figures, make sure you collect all the information you can.

Franchisors are running a business and it is in their interests to have win-win situations i.e. a profitable business model, solid systems and procedures and capable franchisees who are well equipped to make it work.

The key to any successful partnership at any stage of the franchise relationship is the open and transparent flow of information and an honest, ethical, trusting and sustainable relationship.

Of course your prospective franchisor will provide a lot of very useful information. A lot of this information a franchisor is obliged to provide under the Franchising Code of Conduct.

The franchisor may also be able to give you generic information about the success or otherwise of other franchisees but will this translate to your territory?

The franchisor may tell you there is demand for your services, but how do you qualify that demand? It’s a bit like the news fact check on the ABC – you need to find out whether what the franchisor is telling you checks out: is it fact, half-baked, clever spin, or simply not true.

It’s critical to qualify any claims that are made. Remember a franchisor is not an independent party but someone with a vested interest in selling you a franchise. So, you need to dig deeper.

How to get the best information

There is a wealth of additional information and resources you can tap into to determine if your prospective opportunity is a top franchise. How you analyse that information and your ability to ask pertinent questions will determine whether you make a truly informed decision.

My franchisor (the HR Dept) held a Discovery Day which consisted of a detailed presentation of the franchise offering as well as ample opportunity to ask questions. The business was well established in the UK  but emerging in Australia. My first line of enquiry was to speak to some HR colleagues in the UK to establish its credibility as a top franchise in that market and whether this brand was something I wanted to put my name and professional HR reputation to.

I spoke to franchisees both in the UK and Australia and was not afraid to ask the hard questions: for instance, are you making money?

I engaged a legal expert to go over the franchise agreement to find out if there were any hidden costs or nasty clauses in there.  I started with the end in mind – how will I get out of the franchise if it doesn’t work?

I chose a specialist franchise accountant and invested in a pre-purchase review which I would highly recommend. This helped me model financials and work out what my breakeven point is and how quickly I could be profitable.

I thought of every small business owner in my network and talked to them about the concept of the business; providing outsourced HR and practical advice to small businesses. I got a resounding thumbs up which gave me confidence that the market was there.

I then turned my attention to my competition. Who else is doing this? What makes the HR Dept stand out, is there a unique offering that gives a competitive edge?

Lastly, your franchisor will not tell you why you are going into business. It is up to you to have that compelling vision of why you want to run your own business and what your 90 day, one year, three and five year plans are.

Nor can the franchisor give you the drive and motivation to achieve them, that can only come from you and a dogged determination to stick to your plan and map out small steps and actions that will enable you to reach your destination.

Tips for picking a top franchise

If I was to distil my lessons learned from my own experience into some top tips – below are my top four for picking a top franchise:

  1. Take your time
  2. Ask lots of questions
  3. Assess the risk vs returns
  4. Make an informed decision – walk away or go for it!

Esther Colman is the franchisee and director of HR Dept Eastern Suburbs Sydney.