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Feasibility Studies in Franchising Why, When and Who

by Ed Teixeira

There are certain activities in franchising that call for a feasibility study. Learn why taking this step is so important.

Why do a Feasibility Study?

In a number of endeavors, especially in the business world, a feasibility study is done in order to identify the viability or potential success of an idea with the goal of answering the question of whether or not a proposed project should proceed. Most feasibility studies are done for businesses, in order to determine whether or not the investment or cost of the project has the potential to succeed. From a financial standpoint, it's a way to identify the risks of investing capital in a particular project before making the commitment. The potential risk or cost of not doing a feasibility study and proceeding with an investment can lead to the possibility of failure and loss of money that would be much higher than the cost of the study itself. In the case of franchising a business or exporting a franchise to another country that ends up in failure, could lead to irreparable harm to the franchise brand.

  When Should a Feasibility Study be done in Franchising?

Businesses that are considering utilizing a franchise in order to increase market share and expand the number of locations by franchising, should have a feasibility study done before committing monies to building and launching a franchise program. Franchisors that are looking to export their franchise concept to another country especially a large country such as the United States or a group considering making a substantial investment to acquire multi-unit franchise rights, should have a feasibility study completed before making the decision to invest the monies these projects would cost. A feasibility study is a critical requirement before investing in a new market, expanding into an unfamiliar overseas territory, entering a large highly competitive market or investing in a major new company strategy.

Who should do the Feasibility Study?

When it comes to a feasibility study, the first rule is that a company should not do it themselves, but rather have a qualified independent firm conduct the study. In addition, be careful of having a franchise consulting firm which would also lead the franchising process do the study since a conflict of interest can arise with a consultant that has a vested interest in the outcome of the feasibility study. Also, be cautious of referrals from a consultant for another consultant to do the study. The best approach is to conduct a search for a franchise firm or professional that can do a feasibility study totally independent from the consultants that will be paid for franchising the business.

In certain situations, it's important that a company has a feasibility study, done before making a major investment to franchise their business or enter a new country or large market.

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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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