How to Evaluate a Franchise Before You Buy

Start with you, not the brand

Before you look at a single brochure, decide how much you can invest without risking your household, how many hours you want to work and whether you want to run the business yourself or manage a team. Some franchises are built for owner-operators. Others assume you will hire a general manager from day one.

Write down the skills you bring. Sales, operations, hiring and bookkeeping experience all matter, and different brands lean on different strengths.

Study the market where you would open

A concept that works in one South Florida city can struggle ten miles away. Look at the population, household income, traffic and competition in the trade area you would serve. Visit competitors at different times of day.

Ask the franchisor how territories are defined, whether they are protected and whether the brand can sell online or through other channels inside your territory.

Compare the true cost

The initial fee is usually the smallest part of the investment. Use Items 5, 6 and 7 of the FDD to build a full picture of opening costs and ongoing fees, then express royalties and fund contributions as a percentage of expected sales.

• Initial franchise fee and estimated build-out
• Royalty and marketing fund percentages
• Required technology, software and supplier markups
• Renewal and transfer fees
• Working capital to cover the ramp-up period

Test the support

Ask exactly what training covers, how long it lasts, who pays for travel and what ongoing field support looks like. Then ask current franchisees whether the reality matched the promise.

Pay attention to how the franchisor treats your questions during the sales process. A brand that is evasive before you sign is unlikely to become more transparent after.

Validate with owners

Item 20 of the FDD lists current and recently departed franchisees. Call a mix of new owners, owners open two to five years and those who left. Ask about time to break-even, staffing, the relationship with corporate and whether they would do it again.

Finally, have a franchise attorney review the agreement and a CPA review your projections. Our guide to reading an FDD walks through each section in detail.