What To Look For When Buying A Franchise

Dear M &M: I am considering buying a franchise what should I look out for? – Jill

Dear Jill:

One must remember this process is a two way street. Just as you need to investigate the franchise generally, there is an application process and you will be evaluated also.  You should be skeptical if you are being pressured or hurried to sign anything. Some things you should understand and be aware of before you enter into any sort of a franchise agreement include the following.

Remember this list is not inclusive of everything one should do as each individual case has its own set of due diligence requirements. Is the name recognizable and what reputation do they have in the market you are servicing? Is there a demand in your marketplace for the products or services they sell? Is the population large enough to generate sales needed to be profitable?

Does the franchise offer financing, marketing plans, site selection services, lease negotiations, or any other business services you might need?  Do they have interior and exterior signage available, are fixtures part of the franchise agreement or do you need to find an outside source, is there any special equipment needed like point of sale system, ovens, shelves, supplies or other items necessary to do business.

If the franchise is the only source for you to buy some equipment needed are they selling at reduced or market value? Do they have insurance, accounting software, business forms, legal assistance and training available? As always return on investment and cost to do business with them need to be considered. Success or failure can be highly dependent on the franchise business practices as well as your own.

Remember, each individual franchise has their own set of rules one must follow to be a part of their organization or franchise.  Are you willing to play by their rules? The Singer Sewing machine company is considered to be the first franchise in the US. In 1851, Albert Singer entered into an agreement with several retailers giving them the exclusive rights to sell his sewing machines. (Source: Small Business Management; Longnecker, Petty, Palich, Hoy).

A franchise is a business model that allows a business owner to license, trademark and package business practices or methods to enable other entrepreneurs to sell products and services under the franchisor’s name allowing the use of trademarks and brand recognition while still maintaining control and giving support to ensure continued success of the organization.

Before you sign a franchise contract make sure you understand the franchise disclosure document. A franchise disclosure document includes information related to the financial strength of the franchise, size, experience, current litigation, restrictions, costs, renewal and cancellation. According to Robert Purvin, who believes his 1994 book “The Franchise Fraud” franchising is just a way of doing business; it’s not a script for success,” he says. “The world is constantly evolving, and all of those ‘proven’ systems have to evolve, too. Proven success does not guarantee success tomorrow.



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