Some franchises are very good. They treat both the franchisor and the franchisee very well. Others are very one-sided. Still others are almost total rip-offs that trap one into paying ten to fifty times the actual value of the business idea, equipment, or whatever it is they are trying to get you to buy.
Before putting any money into a franchise, you should investigate everything completely. We've prepared a list of questions you should be asking, and should get satisfactory answers to before investing.
1. Has your attorney studied the franchise contract, discussed it completely with you, and do you both approve it without reservations?
2. Does the franchise require you to take any steps which are either illegal or even border on illegal, or are otherwise questionable or unwise in your state, county or city?
3. Does the franchise give you an exclusive territory for the length of the franchise period, or can the franchisor sell a second franchise in your territory?
4. is the franchisor connected in any way with any other franchise company handling similar products or services?
5. If you answered yes to the above questions, what is your protection against the second franchising company?
6. Under what circumstances can you end the franchise contract, and at what cost to you?
If you sell your franchise, will you be compensated for your goodwill or will it be lost to you?
8. How many years has the firm been offering you the franchise been in operation?
9. Does the company offering you this franchise have a reputation for honesty and fair dealing among its franchisees?
10. Has the franchisor shown any certified figures indicating exact net profits of one or more of its members, and have you personally checked the figures with these people?
11. Will the franchisor assist you with: a) A management training program; b) An employee training program; c) A public relations and advertising program; d) Capital; e) Credit; f) Merchandising ideas?
12. If needed, will the franchisor assist you in finding a suitable location?
13. Is the franchising firm adequately financed so that it can carry out its sated plans?
14. Does the franchisor have experienced management, trained in depth?
15. Exactly what can the franchisor do for you that you cannot do for yourself? 16. Has the franchisor investigated you carefully enough to assure itself that you can successfully operate a profit to both of you?
17. Does your state have a law regulating the sale franchises, and has the franchisor complied with that law to your satisfaction?
18. How much equity capital will you need to purchase the franchise and operate it until your income equals your expenses?
If you can get the answers to each of these questions, and those answers satisfy you, then you're probably thinking about buying a pretty good franchise deal. However, if you're in doubt about any of these points, be sure to check it out and know the answers for certain before you invest or sign anything.
Buying a franchise can give you a measure of security, and in some cases, sure-fire profits. Business surveys show that fewer than 20 percent of all franchised businesses fail. This is in comparison to a 60 to 80 percent failure rate for ALL new businesses started in this country each year.
Information regarding specific franchising ideas can be found in the franchising directories, which are generally available at the local library. Often there will be a notice posted in franchise outlets themselves.
If you can afford the entry into this business, statistics are on your side. You are now armed with some CAUTION and STOP and GO signs!
You might believe that you know enough about the brand or the company simply through using the product yourself or having eaten in the restaurant, but are you aware of what is involved in running such a business? Do you fully understand the volume of work needed to be successful, and are you able to control staff? Do you get on with people and how are you at interfacing with the public? These are all aspects of the job that you have to consider before you consider becoming a franchisee.
However, there is another aspect of franchising that you should keep in mind; the integrity and experience of the franchisor. Just before you sign up for that prospective franchise business of yours, make sure that you inspect or scrutinize the franchisor first. There's a lot more to learn from and about your franchisor than you might think there is.
In any kind of business, you always need to do some digging. You have to do lots of research and feasibility tests. The franchising world is no different. The fact that a specific franchise is well known nationally is no reason to assume that you need not investigate it before signing the dotted line. You could be investing a substantial amount of money, and you have to make sure it is being wisely spent.
You must inspect the franchisor as thoroughly as possible. You must be able to accept your franchisor as a partner that you can trust. Carrying out these checks is a three-step process. If you are being urged to come to a decision without carrying out your checks, then chances are they are hiding something from you. So why rush? Find out about your franchisor in more detail by following these three steps.
1. Check up on the credibility and reliability of the business you are entering into. This is especially important if your franchisor has been in the business for only a short period of time. Is it a new company? If so, you must carry out a background check both on the company and on the individual offering the franchise.
It's best to seek help from organizations or business bureaus to know more about the franchisor. In the USA, there is the Better Business Bureau among other groups that can help you get information about the franchisor. In the UK you can check with the Office of Fair Trading whether or not a particular company has been reported. They are the ones who might be able to tell you if your franchise is a hoax or scam and if any complaints have been filed against that company. You can also carry out a background credit check on the corporate officers of the company.
2. Talk to them. Ask the franchisor about their experience with other franchisees, and request a list of people who already have franchises. This might involve signing a disclosure statement, but if you are refused then that should set the warning bells ringing. You should be able to contact people already in the business and ask them about their experience with the company. You could ask about the help and training provided, and anything they would prefer to see improved. No reputable company with nothing to fear would refuse such a request, unless at the behest of the franchisee.
3. Seek professional help with the franchise agreement. It would be best to have an attorney and accountant review the agreement and check any limitations since the more limitations there are, the more difficult it will be when you try to recover your money.
If you follow these steps, then you should be able to enter into a franchise agreement with your eyes open, knowing that there are no nasty surprises in store for you.
However, you will generally find that most franchises are reputable and a genuine business opportunity for you. There are many opportunities online that are already making money for other people, and any one of them could be ideal for you. So check out what is available with an open mind, and make sure that the company you choose has been well checked out before you put anything to paper.
Inspecting the franchisor is one way of making sure as far as you can, that your franchise opportunity is a genuine business suitable for your investment.
Both Kim And Charles Petty & Naz Daud are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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