How Do You Investigate a Franchise?

Invenstigate a franchise
Like starting any business, buying a franchise involves a risk therefore investigate a franchise.
Studies show that successful franchisees:

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:

Costs

Term (duration of) agreement and renewal provisions and conditions

Termination clauses

Franchise territory

Procedures and restrictions

Training and assistance

Earnings potential – gross sales, net profit

Expansion plans

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

earnings potential/claims

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:

system

manuals

training program

support

earnings potential

o  Seek the advice of an attorney and accountant who specialize in franchises.

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