o Conduct their own marketing research
o Use their own financial and legal advisors
o Develop thorough marketing and business plans
o Have prior work experience
Prospective franchisees must devote a vast amount of time researching the franchises available and evaluating the strength of the Franchisors.
Find out what franchises are available:
o Read directories
o Read articles and ads in business publications
o Attend trade shows and expositions
o Conduct research on the internet
Evaluate the strength of the franchisor:
o Investigate the franchisor’s history:
How long has the franchisor been in business?
How many current franchisees are there?
What is the failure rate of the franchisees?
Are there any pending or past lawsuits and what have they been for?
Does the franchisor have a reputation for quality products or services?
What is the franchisor’s financial health, credit rating, profitability, reputation etc. What are the earnings claims and profit projections?On what are they based? Are the projections based on franchisor or franchisee-run units?How long have the units used for projections been in business?
What is the background of the principals/management?What is their business experience?Have they personally had any bankruptcies?Have they personally had any recent litigation?
o Carefully study and obtain professional advice concerning the franchising model and franchise agreement, paying special attention to:
Term (duration of) agreement and renewal provisions and conditions
Procedures and restrictions
Training and assistance
Earnings potential – gross sales, net profit
o How fast do they plan to grow?
o Where do they plan to grow?
o Do they have a business plan for your area of location?
o What is their analysis of the competition in your area?
o How many units are being planned for your area? Why that many?
o How much is going to be spent in regional advertising in your area?
o Visit and talk with existing franchisees, emphasizing the:
level of training
quality of products or service
level and promptness of support
operations and quality of the operations manuals
any problems or difficulties with the franchisor
o Visit / talk with franchisees that have left the system and find out why they left.
o Visit the franchisor’s headquarters:
meet the support team
review the operations manuals and see if you can sit in on a training class
o Go to work in an existing franchise for a couple of weeks and really get to know the:
o Seek the advice of an attorney and accountant who specialize in franchises.