The process of investigating and evaluating a franchised business can be confusing even to otherwise experienced business people. Below are six steps, each of which could be divided into additional steps, which serve as a simple guideline for prospective business owners. However, no amount of research or planning will guarantee the success of any venture. There will always exist, however narrow, that bottomless chasm called failure. At some point you must have faith that you can leap across that chasm and begin the adventure of business ownership.
Review in detail all of the franchise sales materials (brochures, videotapes, news releases, industry trade group literature) while concurrently making a list of questions. Because of the regulatory nature of the franchise industry, promotional materials tend to offer more questions than answers. No details are too trivial, no question inane. After all, it's your money and your life.
Discuss your questions from Step 1 with the franchise sales representative. Try to determine if the personality of the business and the nature of the owner's daily responsibilities match your desires. There is no need to worry about numbers at this point. If your personalities do not match, then terminate your investigation.
Request a copy of their Uniform Franchise Offering Circular (UFOC). This document is required by regulations of the Federal Trade Commission (FTC) for all franchise companies. It is a full disclosure document that outlines in detail the investment required and the responsibilities of both the franchisor and franchisee. Along with other information, it will contain a list of existing franchisees that you may contact and a sample franchise agreement.
Contact several existing franchisees. You determine which ones to contact. Most of these business owners were recently in your position. Most freely extend the same courtesy and information to you as others did for them. These are the people of whom you can ask the nuts and bolts, dollars and cents questions regarding starting and operating their particular franchised business.
The first four steps are for gathering information. Now it is time to organize that information into a comprehensive business plan for your proposed territory. This process may be iterative with Steps 2, 3 and 4 until every last piece of needed information has been gathered. You will couple your knowledge of the local territory with the knowledge gained from franchisor and existing franchisees to create a detailed pro forma. A useful business plan will not only give you an idea of the potential of the territory but also outline the steps required to reach that potential.
If the business matches your personality and the pro forma matches your financial resources and requirements, then it is time to finalize your franchise agreement. Every thing in business is negotiable. Try for the best deal possible. Lock in certain start up costs such as insurance quotes, lease rates, etc. Consult with an accountant regarding the tax consequences of different business structures. Have an attorney familiar with franchise law review the final documents. If every thing is in order, take a slow, deep breath and ... sign the check!
The author, Kent Craven, is the longest tenured office owner in FranNet. FranNet has worked with SCORE Chapters nationwide since 1987 to help educate prospective business owners about franchising. Contact him at www.frannet.com/kcraven or by phone at 602 224-9333 ext. – 2.
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