A franchise is great for people who want to own their own business, but have little or no idea how to start it. Like anything else, there are good and bad franchise companies competing for your investment. So when putting your hard-earned and long-saved money into a franchise, you want to be sure that it’s what you really want to do and that you’ll be successful. As I said earlier, no franchisor will guarantee results (if they do, start running) but you can be reasonably confident if you do your homework first. Here are some questions you’ll need to have the answers to:
- Are the products or services something you enjoy personally or have an interest in? This is the beginning
of your new business life, and you’ll have to learn the industry and work long and hard at it regularly.
- Is your franchise company a leader in its industry or at least well known? It’s hard to get new business customers
if no one has ever heard of the company or the brand.
- Are the product selling prices competitive in the marketplace? A high-priced product or service at a new business will take more selling and longer to catch on. But prices that are too low will mean lower profits per sale and perhaps lower quality to the buyer.
- Is the startup cost within your budget? You can usually add 15 to 20 percent extra for unexpected expenses. You will also need additional capital for advertising, marketing, and promotion of your new business. Don’t select a franchise that will drain all your available resources right in the beginning.
- Does the franchisor offer a protected territory or area? You need something in your contract that stops the franchisor from opening another location within a certain number of miles from yours. It’s also nice to have an area where you alone can open additional locations for a two- or three-year period. Ask before signing and have it put in your contract.
- Does the franchisor have company-owned stores or services? Are any near your location or selling area? It will
be hard to compete with the home office for business when they have much bigger resources.
- Are other franchisees making money? The franchisor should readily give you a list of other owners with contact
information. Request a list of 50 or more and select at least five to talk to. If the franchisor is reluctant to give you much information, it’s time to look elsewhere for a different franchise.
- Can you visit other franchise locations and observe their operations? You should be able to see whether this is
really what you want to do and how it’s done. Any hesitation here by the franchisor, and it’s time to hit the road. You might even work at another franchise location for a few hours to get a hands-on feeling.
- Can you live with the hours it takes to run a new business? Are you willing to put your personal time and vacations aside until the business is on its feet and you can hire and train competent personnel? A new business is more time consuming than you may think.
- Are there reduced startup costs if you open more locations? If the franchisor doesn’t have a regular policy on
this, you can request something in your contract that reduces the fees for additional operations.
- Are there any restrictions if you decide to resell? Can you resell at any time to anyone who is financially qualified and of good moral character? Is there a transfer fee, and how much is it? Will the new owner get the same first-class training that you did?
- Is the royalty reasonable for the industry? You can compare by visiting competitors’ websites to see what their
percent of sales is or send them an email requesting the information. One or two percent either way is not a big deal, but five percent is a lot.
- What type of initial training does the franchisor offer? How long is it, and where is it done? How many people
can attend the training, and who pays for it? Do you receive reference manuals as part of your franchise fee? Is there a tollfree help line available 12 to 24 hours a day?
- Does the franchisor provide onsite training and supervision when you first open? Will people from the home office be there to assist you in your first few days or weeks of operation? You can’t run to the training manual with every situation that arises. Plus, you want those first customers to be treated well so they’ll return.
- Is the franchisor constantly looking for new products and services to offer? Markets change and so do consumers. Has the franchise kept up with changing times in the past? Will the franchisor consider your ideas if you submit them?
- Does the franchisor offer assistance in selecting a site? When you have narrowed your location to a few possibilities, will the franchisor review demographics, rent, and area to advise you on which area will be the best for your success? Will they send a representative in person to see the final choice?
- Is the corporate office financially stable? Can you call company suppliers to verify good relations? Are there any
lawsuits pending that would cause concern? Is the franchisor having disputes with any franchisees?
- Does the franchisor have store layout or construction plans available? This will save you money because you won’t have to start from scratch with an architect. You can use any money saved for marketing and grand-opening promotions.
- Are there restrictions on what you can sell? Local markets can vary, and additional products may sell well in your area. How hard is it to get permission to add more or new products? Does the franchisor have discounts set up with national suppliers?
- Does the franchisor offer help in financing, if necessary? Do they have agreements or programs with any national
banks or finance companies that are familiar with the franchise? Can they offer a basic business plan you can use or modify?
- Does the franchisor do national or regional advertising? You may have to pay a small monthly percentage for
marketing and advertising. How are they using this money? Do they provide in-store signs and promotions? How often?
- Are all franchisees treated equally? Or are the larger ones with several locations getting preferential treatment?
You don’t want to be the last in line just because you’re new. Ask another newer franchise owner how he or she feels about this and his or her experience.
These are just a few things you’ll want to know before writing that non-refundable deposit check. It sounds like a lot to find out, but remember that you’re investing much of your life savings and your time. Most franchises are very reputable businesses and should open all the doors to their operations and answer all your questions. To get more information and literature, you can contact the American Association of Franchisees & Dealers or the American
A franchise can give you a ready-made plan or a turnkey operation, which eliminates a lot of the headaches of starting on your own. You just need to be sure it’s what you really want, because once you sign the agreement, you’ll be partners for a long time. Check it out, ask all the questions, and be sure you understand the answers. Double-talk and vague answers are not signs of a reputable franchise company. Demand clear answers to your questions quickly or walk away and look elsewhere.