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How to determine if a franchise is good

With over 22,000 franchises in the UK, it can be hard to know which is right for you. Every franchisor will tell you that their franchise is the best franchise on the market, but how can you really tell? Here are a few simple tips to help you pick a winner.

Growth potential

A franchise is an investment in the future, so it’s important to consider its ongoing prospects. You should think about growth in terms of both your local area and the industry as a whole. A business might be thriving on a national scale, but if your local area is full of competitors, you might struggle to gain a foothold. Equally, an industry might be booming at present, but if it relies on a technology that will soon be obsolete, it is not likely to remain successful. It is a good sign if a franchise has experienced recent growth, but this is not a guarantee of future growth. You need to consider if this growth will be ongoing or if the business is nearing saturation point.

Positive feedback

It is unlikely that you will be the first person to invest in a given franchise, so it pays to talk to current franchisees. They are more likely to give an honest appraisal of the business than the franchisor themselves, and they can give you a better idea of the day to day experience of working for the business. It’s especially important to ask about their relationship with the management and the level of support that they receive. If you start to spot common grievances amongst several employees, or if the company is being sued by one or more of its franchisees, this is a sure sign that something is wrong.

Transparent finances

A franchisor should provide you with a Franchise Disclosure Document (FDD) containing detailed financial statements. This is a legal requirement in the USA but not in the UK, so you will have to insist. It is worth examining this document closely or hiring an accountant to do so. As well as allowing you to gauge the amount of money you are likely to earn as a franchisee, the FDD also gives you a window into the company’s bookkeeping. A good franchise will keep transparent records that are easy to understand. If the finances seem opaque or contain discrepancies, you should be wary of investing.

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