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Franchise Analytics is Opening New Doors

by Ed Teixeira

By analyzing the information contained in a Franchise Disclosure Document it's possible to gain a better understanding of a franchise program and its investment opportunity.

When prospective franchises evaluate a franchise opportunity, they should follow a specific process that enables them to gain as complete an understanding of the franchise opportunity as possible. The process should include a review of the FDD, along with an evaluation of its financial health and a review of other variables. Interviews with current and former franchisees need to be done in order to gain feedback on franchisor performance. However, the one component of a franchise evaluation that is not done, is an in-depth analysis of the franchise's performance and how the results compare to similar franchise opportunities. In other words, an in-depth analytical review of the franchise operation. Utilizing franchisee surveys and information from FDD's enables a firm like Franchise Grade to conduct a more comprehensive review of a franchise opportunity. In addition, the Franchise performance Index ™ which was developed by Franchise Grade provides a scoring system for a franchise. It's based upon a number of variables that include; how long the franchisor has been in business, franchisee terminations and closures, the growth of the system for the past 3 years, current litigation and more. The FPI™ results for a specific franchise can then be compared to franchise industry results and comparable franchises. The benefits from this analytical approach include:

· An objective analysis that uses the same variables to measure performance

· A method for comparing individual franchise system performance to other franchises and industry performance

· A way to identify differences among franchises by identifying the differences in the FPI™ that result in one franchise scoring higher than another

· Being able to compare franchise sectors to each other. For example, how do children's franchises perform as a group compared to other franchise sectors.

As Franchise Grade continues to gather additional statistics on franchise performance, new questions will arise. However, by utilizing analytics to measure the performance of a franchise system the evaluation of that franchise system will be more complete. Its recent report on the Children's Franchise Sector and soon to be released Lodging Industry Franchise report makes more information available to prospective franchisees, franchisors, private equity groups and other franchise industry investors. There is little doubt that increased franchise analytics will provide a new perspective for evaluating franchise systems and open new doors when reviewing franchise programs.

For purposes of full disclosure Ed Teixeira serves as an advisor to Franchise Grade.com, a franchise market research company that provides analytics on various franchise programs.

2015 FranchiseKnowHow, LLC

Ed Teixeira is the President of FranchiseKnowHow.com and Chief Operating Officer, FranchiseGrade.com. He is a former franchise executive and franchisee. He can be contacted at 631-246-5782 or at  franchiseknowhow@gmail.com

 

 

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