"Opportunity is missed by most people because it is dressed in overalls and looks like work", Thomas Edison once said. Shortcuts are scarce.
The purchase of a franchise could be a unique exception to this rule. Opportunity is inherent in a franchise purchase. If not for the promise of opportunity, buying a franchise would not make sense. Opportunity is, essentially, the purchased product.
In this sense, opportunity means buying a proven business system and developing it in a targeted market. It can grow into self-employment or additional income. Opportunity can allow franchisees to leverage the strength of a large organization- greater than any individual ability- affording significant brand equity and logistics. Through the collective strength of a franchise, opportunity is revealed.
For example, there are many options for buying a real estate franchise. Real estate brokerage franchises abound. In 2015, 41% of all agents licensed with the National Association of Realtors were affiliated with a franchise. Real estate investor franchises also exist, presenting still more opportunity.
A prospective franchisee must vet franchise systems carefully. Opportunity potential should be of paramount concern. Franchises devoid of opportunity should discourage interest.
So how is opportunity to be measured and evaluated?
Opportunity can be assessed through appraised growth opportunity. Buying a single unit franchise in an oversaturated area offers little room for growth; thus, limited opportunity exists. A prospective franchisee should consider the ability to acquire additional units for subsequent expansion.
Conversely, acquiring a franchise with no market presence offers tremendous growth potential. Such a scenario, however, offers limited brand equity. Brand equity refers to the strength of the brand within the consumer public, in the targeted market. Simply put, it is how well consumers know your brand. If there is no market presence, there is likely insufficient brand equity. While growth opportunity is high, the opportunity to leverage the strength of the brand is low.
Franchisees should also look to resource allocation when evaluating opportunity. The expected rate of return for the franchise should be worth the capital, risks, and effort invested. The franchisee must gauge available resources, including money and logistical capabilities, to accurately weigh the opportunity.
Those considering a franchise purchase should carefully evaluate the opportunity. Efforts must be taken to carefully explore and analyze franchise options that will produce profitable opportunities.
As a former franchisee and franchise attorney, I provide experienced counsel to potential franchisees in all areas regarding a franchise purchase. My franchise practice is dedicated to serving the franchisee.
Craig M. Morgan, managing attorney at Providence Law
Contact Providence Law for more information.
Providencelawcarolina.com | 704.412.9450
Providence Law serves clients throughout NC and beyond.
We counsel Franchise clients throughout the U.S.