top of page

6 Things We Look for When Evaluating Franchise Concepts

  • Writer: Natalya Arjantseva
    Natalya Arjantseva
  • Oct 23
  • 3 min read

Before we ever crunch a number, we look for the story behind the model. Strong franchise concepts are sustainable, scalable, and structured to protect both franchisor and franchisee. If you’re evaluating a new brand or considering expanding into more units - start here.


ree

1) Franchise Transparency

Item 19 of the Franchise Disclosure Document (FDD) is where franchisors disclose financial performance representations; Including AUV (Average Unit Volume), quartiles, and margin indicators is considered best practice. Clear unit performance ranges help you model realistic outcomes, not best-case fantasies.


Look for a robust FDD Item 19 disclosures with AUV, top/bottom quartiles, and gross margin indicators. The more detail, the better.


Self-Check:

  • Does Item 19 show multi-year AUV data and quartiles?

  • Are cost drivers (COGS, labor, occupancy) discussed anywhere in the materials?

  • Can you reconcile the story you’re hearing with what’s in writing?

2) Unit Economics That Hold Up

AUV trends and margin stability are key indicators of operational health. Growth in revenue without margin discipline can signal inefficiencies.


Look for AUV trends over the last 3-4 years. We love seeing upward trends and strong gross margins, not just a growing top line - Compare them to similar brands in the space.


Self-Check:

  • Are AUVs trending up and margins holding steady?

  • How do these metrics compare to adjacent brands in the same segment?

  • Do operators report consistent cash flow after royalties and ad fees?


3) Franchise Support Infrastructure

Strong support systems (training, dashboards, peer groups) are critical for franchisee success (often reflected in Item 11 of the FDD). A mature system invests in your success and shortens your ramp time. Support quality is the difference between “figuring it out” and executing with confidence.


Look for training, marketing playbooks, accounting standards, data visibility (dashboards, benchmarks), and timely field support. Read existing franchisee reviews.


Self-Check:

  • Is onboarding structured with clear milestones and KPIs?

  • Do you get standardized accounting/reporting guidance?

  • Are there active peer groups, office hours, or field audits?


4) Royalty Split

Fees should buy you real leverage: brand equity, national campaigns, systems, and data. If you’re paying premium royalties, you should see premium enablement.


Look for a balanced fee structure aligned with performance. As a rule of thumb, we like ≥3% in brand/marketing and <10% total royalties.


Self-Check:

  • Are marketing funds producing measurable demand (traffic, CAC, LTV)?

  • Does the royalty leave room for a strong store-level margin?

  • How do fees stack up against competitors?


5) Startup Costs

The “½ of year-one revenue” rule is a smart heuristic. It helps gauge payback and debt service feasibility. This ratio helps gauge payback, risk exposure, and debt service coverage before you sign a lease or place an equipment order.


Look for a capital profile where total startup costs ≈ ½ of year-one annual revenue or less (by pro forma).


Self-Check:

  • Can the store service debt with conservative revenue and margin assumptions?

  • Are there proven cost-reduction paths (value engineering, vendor terms)?

  • Is the ramp-up plan realistic for your market?


6) Brand Strength & Compliance

Vendor programs and compliance standards are vital for brand consistency (often covered in Items 8 and 9 of the FDD). Consistency drives customer trust and valuation. Mature brands don’t let operators “freelance” on product, quality, or experience.


Look for a brand that protects its promise. Approved vendors, enforced standards, and real consequences for non-compliance.


Self-Check:

  • Can the store service debt with conservative revenue and margin assumptions?

  • Are there proven cost-reduction paths (value engineering, vendor terms)?

  • Is the ramp-up plan realistic for your market?


How Finatech Helps Franchise Operators

If you’re considering multi-unit growth or weighing a new concept, we’ll help you assess the financial reality behind the pitch and make a decision you can defend.


We Offer:

  • FDD-to-Model Translation: We turn Item 19 and ops data into clear, store-level pro formas you can actually run.

  • Benchmarking: Compare your target concept’s AUVs, margins, fees, and startup costs against peers.

  • Unit Economics Diagnostics: Identify the 2–3 levers that truly move cash flow (and how to protect them).

  • Capital Plan & Payback: Align build-out budgets, vendor terms, and debt service with conservative scenarios.

  • Ongoing Reporting: Standardized accounting and KPI dashboards to keep each location on-plan post-launch.




bottom of page