Getting started with a franchise may seem like an attractive, more secure option for would-be entrepreneurs looking to run their own business- especially among those who have experienced layoffs, work reductions, or the inability to find work in the first place. But becoming a franchisee generally involves a considerable investment of time and money, and one needs to know how to pick the good franchising opportunities from the bad ones.
To that end, I have compiled a quick checklist of what to consider before entering a contract with a franchisor:
1. Is the Franchise Disclosure Document (FDD) clear, thorough, and accurate? The FDD is one of the most important documents a prospective franchisee will have. The franchisor is legally required to provide specific information about its operations to help the would-be franchisee decide whether or not to work with the company. Since first time franchisees may not know what to look for, it is advisable to hire a franchise attorney.
2. Does the prospective franchisor have a good background and reputation? Has the franchise operated successfully within several different locations for at least 3-5 years? Are there any complaints or litgations against it? Is there a solid business model that is both doable and potentially profitable? Both the Federal Trade Commission and the Better Business Bureau have information on various franchises for prospective fanchisees needing to conduct backgound research.
3. How much support and communication exists between the franchisor and the franchisee? Does the franchisor provide any training to new franchisees? Will it provide any further assistance and support?
4. What does the management look like? Does the management team behind the franchise have the experience and know how to run a successful franchise operation?
5. What is the industry like? Is there growth potential within the industry being considered? What are the current economic trends, and, where applicable, what is the profile of the local market?
6. Are you interested and/or experienced with the particular industry? Do you have the necessary skills and background to be successful in this kind of business?
7. What are the start-up and operational costs associated with this franchise? What kind of area, if any, will need to be leased to operate the business? What about equipment, employees, and supplies?Do you have the financial means to buy into the franchise, expand, or renovate?
8. What is the expected investment of time per week, and what is the projected level of income? This is an extremely important factor to consider when looking into a franchise. Even a franchise operation that offers a well-known brand name and a comprehensive support system, will still require a lot of effort on the owner’s part to open and operate, and a considerable amount of time may pass before the owner breaks even on the investment. This holds even more true for a lesser known brand, with weaker support.
In short, the bottom line for any prospective franchisee is to exercise full due diligence so that precious time, energy, and money are invested in something that will provide an adequate return.