Evaluating Franchise Businesses
Before any move is made to start a franchise - or pay for one - it should be investigated carefully.
A franchise should be looked at in an honest light - just like any other offer. Just like when you look at any other kind of offer, you know that it is probably not honest when it sounds just too good to be true. In fact, you want to look at a franchise opportunity even more carefully when the company offering it only sells franchises.
Be Sure to Understand the Franchise Disclosure Document (FDD)
Upon asking, you can get franchise information about the company that has been specially prepared for possible franchisees. It is called a Franchise Disclosure Document, or FDD. This can consist of information in different forms, including printed material, a DVD or video, websites, and more. The information that must be given to you is governed by the FCC and will basically cover the same information for any company offering a franchise.
Among the information given, you will find much information related to the company, which includes:
- Financial information
- History of the company
- Company officers
- Litigation history
- List of current franchisees, and much more.
It is also possible that there will be included a possible earnings statement and the actual franchise agreement to look over. These may, however, may come separately. A possible earnings statement is optional.
Ask Questions until the Issues Are Very Clearly Understood
The next thing you want to do is to look over the documents and ask questions. Write them down so that you can ask them at the main office and of other franchise owners when you see them.
You will want to know about:
- Training programs (Ongoing?; Is a fee involved?)
- Support level
- Recent franchises that closed and why
- Length of franchise agreement - Is it renewable?
- Exclusive territory?
- Level of control concerning products and services?
- Marketing fees and control?
Talk to an Attorney about the Franchise Opportunity
If you are still interested in the business after you look the papers over, then the next step in the process of investigating the franchise opportunity is to take your documents to an attorney that specializes in franchise law.
Visit the Main Office for a Day
Spending a day at the main office will let you see how the business is run on a day to day basis. Many franchises have what is called a "Discovery Day" and you will be able to meet many people in the office at that time. This will help to put a face with the company personnel when you have to contact them for various issues, needs, and questions.
Talk to Other Franchise Owners
If everything looks good so far, then you will want to talk to some other franchisees about the business. You will be able to find out many things, and it is best if you go see them in person. Call for an appointment before you go and this way they will be able to set aside more time for you. Make sure you have all your questions written out in advance so that you do not forget them.