3 Things to Research Before Buying a Franchise

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This purpose of this article is to point out 3 key steps in researching a franchise before making the decision to buy. As I've said before in older posts, the old adage "measure twice and cut once" certainly applies when you are considering buying a franchise or business. It pays to be very thorough in your research and analysis before "pulling the trigger" on the purchase. There are many excellent franchises and businesses for sale, it is just up to you to weed out the ones that are not or the ones that may just not be a good fit for you. This blog post is certainly not an exhaustive list, but just a review of some key items to review.

History of the Franchise

Be sure to do a thorough analysis of the franchise's history - how long have they been in business? how many locations and/or franchisees do they have (by the way -- a franchisee is a franchise owner, in case you didn't know)? what is the failure rate of franchisees? is there any pending litigation at the corporate franchise or franchisee level? what is the franchisor's financial health? what is the experience and background of the franchisor (corporate) management team? have they personally had any legal suits against them?

Talk with Existing Franchisees

This is a great way to get a feel for the quality of the franchise.    If you can set up a time to meet with them in person, if distance is an issue, a scheduled time to chat by phone will suffice.       Some things you will want to cover with them would be:

  • what has been their overall experience?  has it met or exceeded their expectations or otherwise?
  • if they could do it all over again, would they pick the same franchise to own and operate?
  • does the franchisor provide good support and training?
  • how has your business done?  is it getting the results you've expected?  are you happy?
  • how many hours a week are you working?
  • has the franchisor been fair and good to work with?
  • what are your biggest challenges?
  • where do you see yourself in 5 years as it relates to owning this franchise?
  • have you been happy with how much money you are making?

If you can locate franchisees who have left the business, it would be great if you could chat with them to figure out what happened.     If you have the time and the franchisee is willing to allow you to do this -- it would be a great experience to work alongside them for several days to see what operations are really like.

UFOC & Franchise Agreement

If you've done your research on the items above, and you are still excited about purchasing a franchise, then you will need to carefully review the Uniform Franchise Offering Circular (UFOC) or Franchise Disclosure Document (FDD).  The purposed of the Disclosure Document is to give prospective franchisees all of the key facts regarding the franchisor and its franchise system.    This document covers 23 different categories called "items".     The Franchise Agreement binding contract between the franchisee and the franchisor.    This Agreement is enforced (in the United States) at the State level.   Since this is a binding contract that is full of lots of legal jargon and complexities, it is highly recommended that you consult an attorney that is experienced in franchise law.
Again, we wish you all the best and if you have any questions or comments feel free to CONTACT US HERE.

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  • Author: Matt Maxwell
  • Date: August 22, 2012
  • Category: Buying a Franchise or Business
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