Why “Emerging Brands”?
Interested in a franchise and pondering an “emerging brand”?
Think about why you’re considering one. Could it be the next big thing?
Does your area need this business concept type? Who are the competitors with whom you’ll compete?
Does it pull at your heart strings because you like it? Do you have just the spot or area for it?
The investment seems reasonable? Have you seen or read of good reviews? Does a friend or family of yours know them? Has your significant other(s) think it’s a great idea?
Now, stop for a moment and let’s take a deeper dive in the “Why”.
Ask yourself the following questions. When did they begin franchising? How long were they in business before beginning to franchise? Are they doing it themselves or with the assistance of a franchise aggregator (company that does it all for them)?
What kind of infrastructure does the company have to support their franchisees? Is the founder or founders experienced? Does he or she have a significant experienced support team on staff and not outsourced?
Are the locations they have clustered in a particular market? If so is there a reason why? If not are they scattered about? If so why? Have they registered their Franchise Disclosure Document in any of the 13 registration states? If not, why not? How successful are their locations and how did you verify that if so?
Did you speak with any of their current franchisees, if any? Have they had any closures of locations or franchises (known as “churn”) when accounting for franchises open and those that have closed? Do their location or service areas number more than 2? 5? 10? 20? Are their locations or service areas mostly franchised or company owned? Do they have any existing franchises for sale or being offered for sale?
Does their Franchise Disclosure Document include financial performance representations (known as “FPR’s”) if not why not? If not what is your plan for determining the earnings before interest, taxes, depreciation, amortization of company or franchised locations?
Does your business plan include covering the servicing of the debt with the earnings of the franchise if you’ve used a loan? Does your business plan make a provision for salaries and labor including yours?
Moreover how strong is the company’s financial statement? Are they cash flow positive? Are they financially strong enough to support their franchise effort? If so, how did you measure that? If not, why not? Have you reviewed their balance sheet and profit and loss statement? Are they audited? Have they been involved in any franchise litigation? If so, how serious was it and why did it occur?
What do you expect your return on investment to be? When is it that you expect to realize a return on your investment and how long before you realize your break-even point? Does this franchise have a sales revenue ratio to investment greater than 2:1? If not, why not?
Think about it
These are but just a few of the critical questions you must have answers to before, or during, your consideration of the “emerging franchise”. They are not limited by those you read here. Their franchise disclosure document and franchise agreement will likely be replete with additional areas of interest and perhaps concern that warrant the deep dive we spoke of at the outset of this article.
It could very well be that you may become entirely satisfied with the conclusions you come to having these and other questions answered. After all, even the largest franchisors generally started small. Conversely, you may very well find that the weaknesses of the emerging franchise outweigh the positives. If so, you’ll have saved yourself money, grief, heartache and more by not rolling the dice with a relatively new upstart.
I once wrote that due diligence is extremely important when it comes to emerging franchises. One of the comments I received was that it is extremely important with ALL franchises including the giants. That truth cannot be suppressed nor disagreed with.
Small or BIG doesn’t matter when making a life changing decision. Investing hard earned money ranks up there with one of the most extremely important decisions you’ll make in a lifetime. Treat it accordingly and get some informed and experienced help to assist you with it.