How to analyse a franchise before buying it?
Introduction
Buying a franchise seems more secure than starting a traditional business. You benefit from a recognised brand, a proven model and structured support. But this appearance of security conceals significant constraints: ongoing royalties, limited autonomy and dependence on the network.
Before committing to a franchise, you must analyse far more than the profitability figures displayed in the commercial brochure. The franchisor's solidity, the royalty structure, the contract clauses and the actual performance of existing franchisees are all determining factors for your success.
Unlike a traditional business acquisition, buying a franchise binds you contractually to a network for several years. This analysis must therefore be particularly rigorous to identify solid opportunities and avoid franchise-specific red flags.
This guide provides you with the essential criteria to evaluate a franchise pragmatically, compare business models and make an informed decision before launching.
📌 Summary (TL;DR)
Buying a franchise requires an in-depth analysis of the franchisor (history, number of franchisees, brand awareness), financial aspects (royalty structure, actual profitability of existing franchisees) and the franchise contract. It is also necessary to verify the support provided, analyse the catchment area and identify specific red flags such as unrealistic promises or high franchisee turnover.
📚 Table of contents
- The specificities of a franchise compared to a traditional acquisition
- Analysing the franchisor and the network's solidity
- Breaking down the franchise's financial aspects
- Examining the franchise contract in detail
- Verifying the support and training provided
- Analysing the catchment area and location
- Franchise-specific red flags
The specificities of a franchise compared to a traditional acquisition
Buying a franchise differs fundamentally from a traditional acquisition. You join an existing network with a standardised business model, an established brand and defined processes.
In return, you pay regular royalties and accept dependence on the franchisor. Your management autonomy is limited by the franchise contract.
This structure requires a specific analysis: evaluating not only the franchised unit, but also the network's solidity. Compare with other acquisition opportunities to measure the advantages and constraints of the model.
Analysing the franchisor and the network's solidity
The viability of your investment depends directly on the franchisor's health. Verify its seniority, financial stability and market reputation.
Examine the number of active franchisees, the contract renewal rate and any legal disputes. A transparent and solid network protects your investment.
Request the franchisor's annual accounts and consult the commercial register to identify potential financial warning signs.
Number of franchisees and history
A mature network with stable growth inspires confidence. Analyse the evolution of the number of franchisees over the last 5 years.
Identify the number of closures and their cause. A high turnover rate often reveals structural problems: unprofitable model, insufficient support or tensions with the franchisor.
The average longevity of franchisees in the network is a reliable indicator of satisfaction and actual profitability.
Brand awareness and positioning
A recognised brand facilitates customer acquisition and reduces your marketing costs. Evaluate its presence on the Swiss market: spontaneous awareness, media coverage, digital presence.
Analyse the competitive positioning: does the brand differentiate itself clearly? Consult online customer reviews and social media to measure actual perception.
A strong brand justifies higher royalties and accelerates your outlet's profitability.
Breaking down the franchise's financial aspects
The costs of a franchise exceed the purchase price. Identify all financial flows: entry fee, monthly royalties, marketing contribution, initial investment in equipment and stock.
Royalties typically represent 3 to 10% of turnover. Calculate their impact on your net margin and compare with independent businesses in the same sector.
Use the valuation tool to verify the consistency of the asking price with expected profitability.
Royalty structure and its impact
Royalties are fixed charges calculated on turnover, not on profit. They therefore directly weigh on your profitability, especially during the start-up phase.
Calculate your break-even point by integrating these costs. Compare with sector benchmarks to assess whether the pricing structure remains competitive.
Some franchisors also impose mandatory marketing contributions. Verify their actual use and return on investment for the network.
Actual profitability of existing franchisees
The franchisor's projections are often optimistic. Request anonymised financial data from other franchisees: average turnover, net margins, return on investment timeframe.
Contact several current franchisees directly. Ask specific questions about their profitability, the difficulties encountered and the quality of support received.
If the franchisor refuses this transparency, consider it a major warning sign. A successful network willingly accepts this verification.
Examining the franchise contract in detail
The franchise contract defines your rights and obligations for 5 to 10 years. Analyse each clause: duration, renewal conditions, non-compete clause, territorial exclusivity.
Verify supply obligations: are you required to purchase from imposed suppliers? What are the early exit conditions and potential penalties?
Have this contract analysed by a specialised lawyer without fail. The Leez expert network can direct you to competent professionals.
Verifying the support and training provided
A good franchisor invests in your success. Evaluate the quality of initial training: duration, practical content, on-site support during opening.
Verify the existence of ongoing training, responsive operational support and marketing tools made available. The availability of a dedicated contact person is essential.
Question existing franchisees about the actual responsiveness and effectiveness of the support. A franchisor present only to collect royalties compromises your success.
Analysing the catchment area and location
Even in an established franchise, location remains crucial. Verify the territorial exclusivity granted: which area protects you from internal competition?
Analyse population density, local purchasing power, accessibility and footfall. Identify direct competitors, including other franchises from the same network nearby.
Consult our guide to analyse a retail business location and apply these criteria to your catchment area evaluation.
Franchise-specific red flags
Certain warning signs are specific to franchises. Beware of a very young franchisor without proven track record, unrealistic profitability promises or high franchisee turnover.
Financial opacity, ongoing legal disputes with franchisees or excessive commercial pressure during the sale should alert you.
A franchisor who refuses access to its current franchisees or does not provide verifiable financial data is probably hiding problems. Consult our complete list of warning signs before buying to secure your decision.
Analysing a franchise before buying it requires a methodical and rigorous approach. The network's solidity, the royalty structure, the actual profitability of existing franchisees and the contractual clauses are all elements to dissect before committing. Location and catchment area remain crucial for your success, as do the support and training offered by the franchisor.
A franchise offers a structured framework and an established brand, but it also imposes specific financial and operational constraints. Identifying red flags allows you to avoid unpleasant surprises and secure your investment.
Looking for other acquisition opportunities? Explore the companies for sale on Leez and compare available business models. Our platform gives you access to verified opportunities and an expert network to support you in your analysis.
