Deciding to purchase a franchise is one of the most important decisions you will make. Having the right people on your team will save you both money and time. We strongly recommend each individual who is considering franchising to seek three trusted advisors to help mitigate the risk. They are:
- A Franchise Attorney - Notice the emphasis on Franchise. This is a highly specialized area that most attorneys have no practical experience with; those who do not specialize in this area often seriously underestimate the complexities that can be involved and you can end up paying for the time it takes them to familiarize themselves with the issues and applicable statutes and regulations. Having an attorney that specializes in franchising will not only save you a lot of headaches it could ultimately save you a lot of time and money.
- An Accountant - again finding one that is well schooled in the nuances of the franchise industry will help you understand and interpret financial information of the franchisors and the pro formas etc. that you will develop in your due diligence.
- A Franchise Coach - This is an individual like me that works closely with you as a guide and a mentor to ensure that your evaluation of the franchise concept and its associated industry includes an honest assessment of your skills, experience, preferred ways of doing business, financial resources, lifestyle factors and exit strategy.
What Should I Look For?
A good Franchisor will have considerably reduced the inherent risks of setting up a new business in several possible ways:
- they will have proven that their business system works well, and can be reproduced consistently
- they will have tested their idea, by means of at least one (but preferably more) test market operations which they have operated for a minimum of a year in a typical location
- they will have justified their royalty payments by providing a significant number of support services for their owners, thus freeing owners to concentrate on building their business
Will the franchise be risk-free? Of course not; there is a human factor to consider (the franchisee) as well as many other factors, and therefore no franchisor can promise success. But franchising has demonstrated time and time again its ability to reduce risk versus the option of starting a business without the benefit of a franchise system.
How Do I Avoid Mistakes?
In the right circumstances, franchising reduces the risk of getting into business. Nevertheless, your process of investigation should be extensive and methodical. Most initial buyers will say, "I don't even know what questions to ask." If this is true for you, allow me to point the way for you.
Start now, and study up:
- Learn about franchising. Read books, attend seminars, etc. and become familiar with terminology. I will be happy to refer appropriate resources for you.
- Examine your motives for going into business - and be realistic. Even the best franchises can test your patience that first year of operation. If you aren't particularly good at seeing things through, then franchise ownership may not be the right way for you to go.
- You will need the support of your family and should discuss your plans with them. In fact, most states require both husband and wife sign a franchise agreement so encourage your spouse be part of your investigation process.
- Study the concept - I will help you know what to examine, what to learn, what will work with your skills and experience.
- Study the UFDD/FDD. The Franchisor must provide you with a disclosure document that delineates all of the pertinent facts relative to their opportunity. If they do not offer you one before asking you to sign a contract, they are breaking the law.
Good luck with your franchise search and please consider using Paradigm Franchise Group as part of your due diligence.