Tips for Researching a Franchise Business

June Campbell A franchise operation can be an excellent investment for people
dreaming of self-employment. Franchise opportunities fall into three
basic categories: Product, Service and Wholesale Distribution. The
franchise you select must be one that will maintain your interest
through years to come. Not even a lucrative franchise opportunity
will work for you if you find the business dull or boring. However,
like all business opportunities, there are risks involved. You'll
minimize the risks by doing your homework before you sign on the
dotted line.

1. Conduct Preliminary Research
Ask the franchise company to send you brochures, pamphlets and
videos, if possible. Then, locate the nearest two or three franchise
operations and visit each. Talk with the franchise holder, the
employees and the customers to get their reaction to the product or
service. Hint: Ask the franchisee if he or she would purchase the
same franchise again.

2. Study Company Documents
US franchisors are required by law to provide you with documents
offering full disclosure of the franchise opportunity. (Laws may
differ in other countries). These documents could be called the
Offering Prospectus (OP), the Disclosure Document or the Franchise
Offering Circular. These papers provide you with a wide range of
information about the franchisor. Look for a company that is three
years old or more. Senior executives should have positive business
experience in the franchise field and have a good record regarding
previous litigation and bankruptcies.

3. Consult with Business Professionals
Take the OP, the Disclosure Document, and the franchise contract to
an accountant, attorney, management consultant or other business
professional for analyses of the financial and legal aspects.

4. Learn the Franchisor's Policy Regarding Territory Protection
You'll want to know the franchisor's policy regarding the number of
franchise unit's they'll establish within a geographic area. Do you
have a protected territory? You don't want to discover that the
company has established a similar unit across the street from your
operation. Additionally, some franchisors also open and operate
company owned stores as well as the franchise outlets. What's their
policy regarding company stores?

5. What Fees Must You Pay?
Expect to pay an initial franchise fee (often non-refundable), as well
as fees for startup expenses, inventory, licensing, insurance, and a
"grand opening fee" for initial promotion. Anticipate annual
expenses such as royalty fees and marketing fees. Find out what
portion of your advertising fees goes to your own outlet and what
portion goes to national advertising. Hint: Ask about hidden fees.

6. When Will You Break Even?
Based on your investment and the breakeven analyses in the OP,
how long before you reach the breakeven point and start making a
return on your investment? Do you have financial strategies that will
allow you and your business to survive until the breakeven point?
What sort of profits might you reasonably expect to make?
Franchisors are not required by US law to offer profit projections to
their franchisees. However, if they do, they are required to base their
projections on concrete research.

7. How are Conflicts Resolved?
Is there a Conflict Resolution Policy in place? What do other
franchisee's say about the company's approach to addressing
conflicts? Under what circumstances can the company terminate
your contract? If your contract is terminated, will you lose your
investment? When will the contract be up for renewal? Hint:
Franchise contracts that are renewed do not necessarily keep the
same terms as the original contract. Terms could be less favorable.

8. Will the Franchisor's Advertising Campaign Benefit You?
You are required to pay a fee towards the franchisor's advertising
campaign. Find out the extent to which this campaign will benefit
your outlet. Do you have any control over how the advertising
dollars are spent? Can you conduct your own advertising? Do you
need permission to do so? Do franchisees benefit from any
commissions or rebates that the franchisor receives?

9. What's the History of Failed Outlets?
Before investing, find out the number of outlets that have failed.
High numbers could indicate systemic problems. Be aware that some
franchisors will disguise failed outlets by turning them into
company-owned stores. If you are purchasing an existing outlet, be
sure to find how many previous operators have operated the service
and why they left. Hint: Conduct interviews with people who have
recently left or joined the franchise. Be sure to ask if the franchise
company is delivering the promised supports and services.

ABOUT THE AUTHOR
June Campbell
How to Write Business Plans, Business Proposals,
JV Contracts,Human Resource Package, More!
No-cost ebook "Beginners Guide to Ecommerce".
Business Writing by Nightcats Multimedia Productions
http://www.nightcats.com