Once you decide to pursue franchising, one of the most significant tasks is identifying which opportunities align with your goals and are worth considering for investment. This stage of your franchising journey is not always easy, as it often requires significant time and research to create a shortlist of options. However, it is a crucial time because you want to feel confident in your eventual choice.

While factors such as personal interests and investment costs can influence your decision, an effective strategy for evaluating a franchise opportunity involves taking a comprehensive approach to examine each business’s past, present, and future.

One of the advantages of franchising is that it allows you to take on an entrepreneurial role while thoroughly researching a business and industry before investing, an advantage that a start-up owner, for example, may only come to understand post-investment. By examining a franchise’s history, current performance, and future direction, you can gain essential insights into its stability, which will help you make a well-informed decision about whether to invest.

In this article, we’ll take you through what to look for when researching a franchise opportunity:

THE PAST: UNDERSTANDING A FRANCHISE’S TRACK RECORD

One of the goals of looking at a franchise’s past is to understand its roots. Where did it all start? Why was the franchise developed in the first place? Understanding what kicked things off can not only be a great way to enhance your connection to the business but also see how it has contributed to its industry over time.

By examining the past, you can observe how the franchise faced challenges and what measures it took to improve, such as how it performed during the pandemic and the steps it took to maintain resilience. With this insight, you can gain a better picture of the strength and reliability of the business model you’re considering investing in. Additionally, it can reveal information about whether the franchise has a track record of success and what was done (or not done) to maintain stability and enhance its model for its network.

Some of the key elements you can consider when reviewing a franchise’s past include:

  • Brand awareness: What actions has the franchise already taken to establish its presence in the industry? Strong brand awareness and recognition can play a significant role in your ability to attract customers. When customers are familiar with brands, they are more likely to trust them, so investing in a franchise that has already established brand awareness and a presence in its market can be advantageous for franchisees.
  • Historical financial performance: Any available information regarding finances, such as past and recent sales figures from current franchise locations, can provide valuable details about the strength of the franchise business model and whether current franchisees have experienced growth over time. Analyzing year-over-year performance can give you an approximate range of potential earnings as a franchisee.
  • Growth milestones: Has the franchise taken steps to expand? Has it formed major partnerships that enhanced brand awareness? Is it a fast-growing franchise, or have things remained stagnant over the years? Identifying key growth milestones that the franchise has achieved can demonstrate its agility, adaptability, and willingness to advance.

Of course, franchise systems that have been in operation for many years will typically have more details about their history than emerging franchises. However, that raises a bigger question: is a proven track record more valuable when considering an investment, or are you willing to invest in a relatively new franchise that may still be developing its business model?

Ultimately, your decision may depend on the industry you are entering and how valuable factors like brand recognition and customer loyalty are to the products/services the franchise offers. One of the benefits of considering established franchises with a rich history, especially in the early stages of your research, is the readily available information that can help you make a more informed investment decision. A franchise that has been successfully operating for many years can often be a sign of stability and that it meets consumer demand.

interested in owning a Dogtopia?Learn more about the leading dog daycare franchise.
get started

PRESENT: EVALUATING CURRENT PERFORMANCE

How is the franchise business performing now? Is it a leader in its industry? Is it addressing a need in an emerging market? Much of this information should be available on the franchise’s website; this insight would be considered a franchise green flag, as it shows transparency from the franchisor surrounding the franchise opportunity.

This overview can provide details about the system you are considering investing in and help you understand where it’s heading based on the practices it currently has in place.

Some of the key elements you can consider when reviewing a franchise’s current outlook include:

  • Market size and demand: What is the market size of the industry you’re considering investing in? A prosperous, in-demand market can be a great sign. However, it is also important to assess whether the market is oversaturated. There are several ways you can tell if a franchise market is too crowded, and while it shouldn’t be a deterrent from investing, as it can indicate that customer demand exists, it’s important to learn more about the franchise business and the steps it takes to maintain customer engagement.
  • Position against competitors: How does the franchise compare against other brands in the same market? In other words, what are the differentiators that allow it to stand out? If, after researching comparable franchise businesses, you find that the business model and its product/service offerings are not that different, you might find yourself at a disadvantage when trying to build your own customer base post-investment. Look for things like technological advancements the franchise is adopting, new product lines or collaborations, awards it has received, certifications, etc.
  • Current franchisee satisfaction: Meeting franchisees before becoming one can provide a greater understanding of the franchise business and what’s involved. If a franchise location is nearby, see if you can set up a meeting with the franchisee and ask questions that you can’t necessarily find answers to online. You can also see if a franchise offers franchisee testimonials on their website, which can also be valuable.
  • Training and support offered: If you were to invest tomorrow, what initial training would you receive, and what ongoing support could you expect? Evaluating the level of support a franchisor provides can help determine whether you will be supported throughout your franchising journey or if the approach is more “hands-off.” A franchise that invests in the success of its franchisees through comprehensive initial and ongoing support can significantly enhance your chances of success, as it can provide confidence and reassurance at any stage.
  • Type of territories: There are different types of franchise territories, and the type a franchise offers can significantly influence your investment decision. For example, an exclusive franchise territory protects against internal competition by preventing other franchise locations within the same network from opening within a designated area. Meanwhile, an open franchise territory is on the opposite end of the spectrum, as the franchisor does not place any specific geographical restrictions.
  • Geographic availability: Where does a franchise system currently want to open new franchise locations? Is it in a specific region of the country, or is the franchisor open to franchisees in any location? Be sure to explicitly look to see if this information is listed, as it can help you determine whether you should continue further.
  • Finances/fees: There can be strict requirements that a franchisor implements for all franchisees, especially surrounding finances (i.e., net worth, liquid capital, etc.). You must review these requirements, as well as the franchise and royalty fees, to determine if the investment is right for you.

FUTURE: WHERE ARE THINGS HEADED?

A crystal ball that can predict future success doesn’t exist, but it is important to think ahead in franchising, and there are several ways to gain insight into a franchise business and assess its long-term potential. Understanding where things are heading for the franchise and the industry in general is essential, as it can gauge your potential success as a franchisee and your return on investment.

Some of the key elements you can consider when reviewing a franchise’s future include:

  • Industry outlook: To gain insight into your chosen industry, search for “[industry] market projections” online. You can often find industry data and projections of where a specific market or overall industry is heading, with factors like trends and customer demand factoring into these projections. Conducting this search can provide critical context for the space you’re considering investing. If the forecasts indicate slow growth or they’re not reaching your desired rate, you may want to reconsider investing.
  • Innovation plans: We live in a digital age where franchise systems must stay on top of the latest innovations, including leveraging the latest technology, like artificial intelligence, to stay relevant and meet consumer needs. For instance, at Dogtopia, we’ve implemented several innovative products and services that have strengthened our brand. We also have advanced technology that our franchisees can use to their advantage to stand out in the booming pet industry.
  • Expansion strategy: What are the franchise’s plans to continue growing, such as in new territories? Has the franchise taken any steps to improve its locations to help make expansion plausible? A clear expansion strategy helps show that the franchise is committed to increasing its reach and expanding the brand, which can result in brand awareness advantages for franchisees. For example, the efficient store design that we’ve implemented at Dogtopia accommodates a smaller footprint, but maintains maximum playroom capacity, which reduces capital expenditure while still offering revenue opportunities.
  • Multi-unit ownership: Does the franchise offer a clear path for owning multiple locations? Even if you’re only considering investing in a single unit, it’s important to think about future opportunities and how the franchise can support you if you decide to expand your portfolio with additional locations. A franchise with a growth mindset actively supporting its franchisees is always a plus.

FRANCHISING WITH DOGTOPIA

If you are considering investing in Dogtopia, we encourage you to review our past, present, and future to see if we are the right business opportunity for you. Do you meet our franchise requirements and are ready to take the next steps? Please fill out our online inquiry form to get started.

Tags: