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The major subject areas include: |
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The history of the franchise and its
officers and directors. |
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A complete description of the business
to be franchised. |
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All costs and fees that you will be
subject to under the agreement.
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The obligations of either party to the
other during the term of the agreement
and thereafter. |
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Any relevant litigation history of the
company or its officers. |
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Any business failures, ownership
transfers, franchise agreement
terminations or other potentially
adverse information relating to the
success rate of the existing units in
the system. |
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Audited financial statements for the
franchise company for the previous three
years. |
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A list of the existing franchisees. |
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A few franchisors also include an
earnings claim in the FDD document.
Though they are not required to do so,
this can be a real time saver for you if
it is included. Even if it is included
in the FDD, it is still imperative that
you discuss this subject with
franchisees during your fact-finding
calls and visits. You will carefully
review the FDD document and note any
questions or issues that the material
raises for further discussion with the
franchisor. You may also choose to
involve outside advisors to review
material you are not familiar with. |
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Step 3 - Franchisee Calls and Visits
The most valuable source of information
on any franchise system is the existing
franchisees. You need to plan on calling
or visiting a number of the existing
franchisees during your investigation.
It sounds almost trite, but whatever you
find the prevailing attitude of the
existing franchisees on any issue to be,
it will almost certainly be your
attitude on the issue as well if you
decide to become a franchisee. Visit
with a sufficient number of the existing
franchisees to ensure you have a sense
of the prevailing attitudes of the
group. Though you want to find the
overwhelming majority of franchisees to
be happy and supportive of the
franchisor, it is important to try to
find an unhappy franchisee during your
investigation. When you do, not only
listen to the complaints but also try to
determine what makes this franchisee
different from the rest. If you find you
identify with the positive ones and feel
the negative franchisee is not at all
like you, then you should be fine. If
you find that you are more like the
person who is unhappy however, this is
probably not the right franchise for
you. |
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The following list covers the principle
areas you want to investigate during
these calls: |
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Training Programs - You need to
determine how well the initial training
programs and support prepared the
franchisees for opening and running
their business. |
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Opening Support - How easy did the
franchisor make the process of getting
the first unit open and operating? Was
there assistance in site selection,
lease negotiation, construction and
design assistance, financing assistance,
permits or any other factors unique to
getting this business up and operating?
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Ongoing Support - You want to know how
effective the ongoing support services
of the franchisor are in terms of
helping franchisees deal with the
problems that come up in the running of
their business. |
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Marketing Programs - Most franchisors
collect marketing dollars from every
franchisee into a pool that is spent to
promote the brand. You need to
know whether the franchisees are happy
and supportive of the way this process
is handled. Note: this is typically the
area where you will find the most
complaining in any franchise you
examine. |
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Purchasing Power - Does the franchisor
use the collective buying power of the
total system to get discounts on
supplies and inventory beyond what an
independent operator could achieve? This
factor is one of the biggest advantages
of joining a well-run franchise system
and should offset much of the fee cost
associated with being a franchisee. |
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Franchisor/Franchisee Relations -
Determine what the franchisees feel
about the franchisor in general. Is the
franchisor supportive, caring, focused
on their success, responsive, effective,
organized, and trustworthy? Make sure
you have a good feeling about the values
of the organization and that they are
consistent with your values.
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Investment - The FDD will give you a
wide dollar range for the investment
required in the business. Use the
franchisee discussions to narrow that
down to a reasonable and conservative
estimate of how much capital you will
need to be successful in this franchise.
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Earnings - It is critical that you have
a strong sense of just where the average
unit is in terms of earnings. You should
know the answers to the following
questions: How much money does the
typical unit make given a specified
length of time in business? How soon
does a typical unit start making money
after opening? What is the range of
answers for these questions? If you are
simply not able to determine
these answers to your satisfaction in
your research, do not settle! Tell the
franchisor of the problem and that you
cannot proceed unless you have these
answers. It is always a good idea to
bring up the subject of earnings as the
last point in your franchisee visits.
Most people are reluctant to discuss
their income with strangers and you will
find the franchisees are more willing to
cover this subject after you have spent
some time visiting with franchisees are
more willing to cover this subject after
you have spent some time visiting with
them. At that point they know you're not
a competitor trying to get information
but rather a serious prospective
franchisee who will need the information
to proceed. They were all in your
position at some point in the past. |
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Step 4 - Review the System Documentation
A strong franchise company will have
documented their systems, operations and
marketing programs in a concise and easy
to use format for the reference of
franchisees. Make sure that such
documentation exists. The franchisor
will probably not give you a copy of
their actual manuals, but they can
certainly provide you with the table of
contents or index of every support
manual they have. This will enable you
to confirm that the documentation exists
and will show the scope of the coverage
of all their major business factors.
Step 5 - Meet the Franchisor
At some point in the process of
investigation, you will want to have
personal meetings with key personnel of
the franchise company. This might be
possible in your local market or you may
need to travel to the headquarters of
the franchisor. Many franchisors
facilitate this need by holding what are
referred to as "Discovery Days". These
are structured events where you can go
to a specified location and know that
all of the key people from the
franchisor will be available. Be sure to
get to know those people you will be
working most closely with as you build
your business. We would expect the
President of the company to be an
impressive person, but that's not who
will be answering your call when you
have a problem. Find out who will be
providing the operational support and
training directly to you and form an
opinion about their competence. Make
sure that any remaining questions or
issues you may have are addressed at
this meeting.
Step 6 - Make a Decision
If you have been diligent, the entire
process outlined above will take about
three to five weeks to complete. You
have now have all the information you
need to determine if this franchise is
right for you. It either is or it isn't,
and you'll know which it is. In either
case, it is time to make a decision. The
franchisor only wants the best in it’s
ranks and they only want a fully
committed partner. Whether you are in or
out there are no hard feelings at this
point, however you do not want to waste
the franchisor’s time and hang on for
weeks while trying to make a decision.
They will withdraw the offer after a
short period of time, because they
cannot hold the franchise in reserve for
any length of time. Discuss your
thoughts with your consultant, he or she
may have some very helpful insights that
you should have the benefit of
considering.
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