Where other businesses struggle, franchise businesses thrive. Wendy’s and McDonald’s are prime examples of successful franchise businesses, and also provide inspiration for those individuals who really want to form their own successful businesses in the future. With a brand behind you and a good idea of what does and does not sell, it is no wonder that you have chosen to consider a franchise.
There are two types of franchises out there. One is the good franchise that takes care of its franchisees, providing training and support throughout. The second type does nothing but take from the franchisee and pushes for profit. There is a third type of franchise and that is the one that will rip off franchisees, taking them for as much money as possible. The latter two are not worth the time, money and energy, whereas the former is extremely desirable.
As such, it is essential that you do your research and investigate a franchise thoroughly before signing a contract or paying out any money. The list of questions below may help you to find the better ones as the answers they will yield will give you enough information to make an informed decision:
1. Have you and your attorney analyzed the franchise agreement in detail and do you both completely agree with the details?
2. Are there any elements or step required of you that would break the law or be to the detriment of yourself or your country?
3. Do the provisions in the franchise agreement give you exclusive territory for the period of your contract? If not, what is the maximum number of franchises that may open in your area?
4. Is this franchisor connected in any way with any other franchise company handling similar products or services?
5. If you answered yes to the above question, what is your protection against the second franchising company?
6. If you decide to end the franchising contract for any reason, what are the provisions for you to pull out of the contract and how much would you have to pay to break the agreement?
7. Are you able to sell your franchise during or at the end of your contract? If you are legally allowed to do so, what are the repercussions related to compensation?
8. What time period represents the duration of your contract and how long has the franchisor actually been in full operation?
9. Does the company offering you this franchise have a reputation for honesty and fair dealing among its franchisees?
10. Has the franchisor shown you any certified figures indicating exact net profits of one or more of its members, and have you personally checked the figures with these people?
11. Are you able to tap into franchisor assistance with training, PR, advertising, capital, credit or merchandising?
12. Are you offered assistance for finding the best location possible in your chosen area?
13. Does the franchising firm have solid financial input to ensure stability and the establishment of goals?
14. Does the franchisor have experienced management, trained in-depth?
15. Can the franchisor do anything above and beyond what you are capable of yourself?
16. Have investigations into your background been carried out and has the franchisor been assured that you are capable of making a profit?
17. Does the state in which you live in have franchising laws in place, and does the franchisor adhere to them completely?
18. How much equity capital will you need to purchase the franchise and operate it until your income equals your expenses?
It is extremely important to answer these questions fully and to your complete satisfaction. If this is the case then you may be extremely eager to become a franchisee. However, you should research all answers to get them verified in several places to ensure that your investment would be a wise one.
Purchasing a franchise can provide you with stability and profits in a short period of time but that is not to say that it is infallible. Less than 20% of all franchises fail so you need to ensure that you do not become a statistic. Information regarding specific franchising ideas can be found in the franchising directories, which are generally available at the local library. This will give you a little assistance to get started but you need to ensure that you are completely happy before committing.
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Tag: franchisors
Buying a franchise is a lot like marriage. Two parties enter into a relationship with the expectation of mutual benefit, long-term support and common goals. When entering into marriage, both people spend a great deal of time learning about each other and making sure they are a good match before making the commitment. The same is true for franchising. Both the franchisor and the franchisee gather information about each other and evaluate whether there is a good match. Although it may not be immediately evident, a franchise company is under no obligation to award a franchise to just anyone who can afford the franchise fee. In many cases a franchisor has as much or more at risk when a franchisee fails.
A franchisee that fails loses money, but a franchisor must report every failed franchise unit in a document called a UFOC (Uniform Franchise Offering Circular). This document is provided to each and every person interested in buying the franchise. A company that shows significant franchise unit failures will have a more difficult time attracting new franchisees. A failed store can also tarnish the brand.
Like any good business, a franchise company will want to populate their system with great people. Since franchising is based on a strong, consistent brand, a franchisor looks for franchisees who will present the brand in the most positive light. In the same manner, they only want franchisees that are able and willing to learn the system and work within its specific parameters.
In many ways, this is actually an advantage for women entrepreneurs. Historically, women are seen as better listeners and more likely to follow the set of rules provided by a franchisor. Experience in a particular industry is not as important as general business knowledge. Marketing and sales experience are often required and these are also areas where women tend to be strong and have experienced success.
When researching a franchise company, you will find that they may have as many questions about you as you do about the company. A franchisor is putting their time, money and reputation on the line, so most have developed a “profile” of a successful franchisee which they use to determine if you are “right” for their business.
While this may sound exclusionary, franchisors have a very good reason to learn what works and to stick with it. Successful franchise companies want their franchisees to excel. They have refined their systems around a set of standards they have learned franchisees need to thrive.
Yes, it’s true. You can’t buy a franchise as easily as you can buy a condo or a pair of Manolo Blahnik shoes. You must first pass the franchisor’s test. These are the most common items a franchisor looks for in a potential franchisee:
• Money may not buy happiness but you will need it to buy a franchise. Most franchisors have a minimum net worth and liquid capital requirement for their franchisees. While this may seem obvious, there are other demands on cash availability beyond the initial costs of the franchise – such as the length of time it will take your business to start making money and the living expenses you will have during that time. There are financing options available that may help you qualify if you are short of capital, however no good franchisor will want to see you start out your business heavily in debt.
• Personality is paramount to passing the “test.” Few businesses run themselves. They require hard work to get them up and running. There are some personality characteristics that seem to be common in all successful franchisees. Other characteristics are specific to individual businesses.
o Are you willing to follow a system or are you the type who wants to do everything your own way?
o Do you enjoy working with people?
o Can you lead a team of employees?
o Are you focused and decisive?
o Do you enjoy solving problems?
o Can you set and meet personal goals?
These are some of the questions a franchisor may have for you and your answers will determine not only if you can qualify for a particular franchise but also if you will be a successful franchisee.
• If the shoe fits, you’re a match. Fit is another area franchisors look for. Each company has its own culture and franchisors realize that a franchisee must be comfortable with the corporate staff as well as the other franchisees – and vise-versa.
• Does experience matter? Franchising is one area of business where your specific experience is less important than other factors. That’s because of the excellent training provided by most franchise companies. In truth, many franchisors prefer franchisees without industry experience because it is easier to train someone in a franchisor’s system than it is to “un-train” a franchisee who has ideas that may conflict with the way a franchise system works. Again, it is the overall business experience you’ve attained through life that will make you a “star” in a franchisor’s eyes. One attribute that is required by most franchisors is that you have business acumen and understand how the parts of a business contribute to the whole.
The goal for every franchisor is successful franchisees. As much as you may want to qualify for a franchise opportunity that interests you, remember that the franchisor has the background and experience to know what type of person makes a good franchisee in their system.
Those strappy sandals you want may look great but it they don’t fit, you’ll be unhappy in the long run. The same is true for buying a franchise. It really has to be just right for you to provide you with the opportunity for long-term success, so passing a franchisor’s test is just another way to be sure you’ve chosen the right business.
Kim Ellis is the President of Bison.com, a leading online resource for franchise and business opportunities. She has been quoted as an industry expert in USA Today, Wall Street Journal and a variety of local and regional publications regarding trends in business and franchising. Kim combines her entrepreneurial spirit with a diverse background in marketing and operation to help others succeed in franchising.