I have been interested in buying a specific franchise for about 10 years. Now the time has come and I would like to act on the interest. I'm seeking professional advise before I act. I am currently reviewing an application package from the franchisor. I am enrolled at a local university for upcoming small business seminars.
Answers
Thanks very much Milton and Cedric. I look forward to the day when I can offer advise as you have and be a mentor to many people.
If you visit my blog you will find additional information to learn about franchising.
http://www.joinblogging.com/2010/05/buying-franchise.html
For deeper counseling e-mail my associate Gerard Harkin - harkinger@aol.com
and he will connect you to a Google Hangout (similar to Skype) for personal mentoring.
Best of Luck,
Milton Zlotnick
SCORE Mentor (US SBA)
Xavier -
Matt has provided some great feedback.. But, to give you my take/experience ($.0.2) as follows... If you talk to the founders, franchisees, and the product and company feels right to you, you're probably looking at a very good business...
I would suggest talking to the Franchisees until every one of your questions have been resolved to your satisfaction. As the old saying goes -No question is a bad question!
Regards,
Cedric
Thank you Matt. Thank you for your service also and good luck to you as well.
Hi Xavier...
Much has been written about this and an overview of the franchise-selection due diligence offered by my bank is provided below.
My add-on to the list would be to identify and talk to ex-franchise owners, both successful and failed, for the franchise you are considering. Include the question: If you were to make a similar investment today--is this the franchise you would choose?
Hope this helps. Thank you for your service and good luck to you.
Matt Garley (USN 1977-81 FTM2)
Small Business Owner
Ten Critical Aspects in Making a Franchise Purchase Decision
1. Consumer demand for the franchisor's product or service :
- Is there strong consumer demand for it? Is the demand expected to continue?
- Are there many competitors? Could more competitors enter the market in the next few years?
- Is the product or service of outstanding quality?
- How does its quality compare to the competition?
- Are you confident you can market the franchisor's product successfully in your marketplace?
2. The franchisor's business track record :
- What's the story on the franchisor's business record and reputation?
- Have you spoken to existing franchisees?
- Have you contacted government consumer protection agencies, Canadian Franchise - Association and your local Better Business Bureau?
- Is the franchisor's infrastructure comprehensive and stable?
- Are there any outstanding legal actions against the franchisor?
3. The proposed legal agreement between yourself and the franchisor:
- Have you reviewed it with an independent lawyer who specializes in franchise law?
- Are the terms of the agreement in line with your expectations?
- Does it cover the challenges you will face in running an independent business?
- Do you feel pressure to sign before you're absolutely ready?
4. The financial strength of the franchisor :
- Is the franchisor financially strong and stable?
- Does the franchisor provide financial information which you can take to your accountant?
- What is the background and experience of senior management?
- Are you confident the franchisor will still be in business many years from now?
- Does the franchisor make available a “Disclosure” document?
5. The nature of the franchise fee and on-going royalty payments :
- How is the franchisor compensated?
- What does the franchise fee cover?
- What do you receive in exchange for on-going royalty payments?
6. The franchisor's financial interest :
- Does the franchisor own the land or building?
- Is the franchisor prepared to go on the head lease?
- Will the franchisor provide you with financial assistance?
7. The franchisor's plans for expansion and growth :
- What is the franchisor's plan for targeted expansion?
- What are the target markets for growth?
- Will your franchise be located where the traffic and demand are likely to be?
- Are you assured of exclusive rights to the franchisor's product and service in the area where you wish to locate?
8. The franchisor's market intelligence and market research capabilities :
- Does the franchisor thoroughly research new markets using reliable and credible market research methods?
- Will you, as a potential franchisee, have access to marketing and product information - regarding your industry as well as your specific business?
- What forms of ongoing field support and assistance are provided, and how do they work?
- Will the franchisor assist you in the development of your business plan?
9. The franchisor's people selection criteria :
- What kind of people is the franchisor looking for as potential franchisees?
- Is there a typical franchisee profile?
- Are there any special training, educational or other requirements the franchisor would ask of you?
10.The franchisor's financial profile of each franchise location :
- What is the total cost going to be for your franchise?
- Does this include: equipment, inventory, leasehold improvements, advertising and promotion? What other costs are included?
- What is the minimum cash commitment you must make?
- Has the franchisor established a pre-arranged financial services program for franchisees with a major bank?
I bought into a franchise about 4 months ago. Read the FDD from front to back. Call other franchisee owners, and ask about the strengths and weaknesses. Be prepared to do much of the work on your own. They will not hold your hand much. It's your money, you need to take control of the situation. Mine is going pretty good, could always be better. And when you start up be prepared for things to cost more than what they may indicate. I was bleeding money for sometime. Best of luck! Chad
Xavier....first, thank you for your service. At this point, are you still looking and investigating a franchise? If so, here's my answer.....first, I don't agree with most of the above answers, especially Nathans. I have been in franchising for 18 years. 11 of which was franchise ownership....first one was as a Regional Developer for a food and retail franchise and second one was a service franchise....I was very successful in both. 9 years ago I started a consulting business called FindMeAFranchise, LLC. My purpose is to help individuals like yourself find and investigate the franchise that you can afford that fits your goals for a business, income and lifestyle etc. and will give you the greatest chance for success. There is a clear investigative process to go through and it helps if youre working with someone wilh a well rounded background that lends itself to franchising. Please check out my profile and send me a message if you would like to talk further. Tamme
Xavier, I am a big fan of putting firs thing's first... starting with the end in mind. I'd advise creating a clear picture on where you want to be 5 and ten years from now. Not just financially(even though you need to be specific), but physically, mentally, family life, social life, spiritual goals. No one really does a franchise to make money... but they do it as a means to get to a different quality of life. What would an extra 150k in income allow you to do in all the above areas that you aren't currently able to do. Unless you have a clear picture of the WHY you would want a franchise, it doesn't really matter what the franchise does, industry, success rate, capital required, etc.... Figure out what you WHY is and then back into the right franchise that will get you there. Nathan
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