Small Business Articles
Text size Smaller Text Larget Text

Basics - How To Buy A Franchise

buying a franchise helpInvesting in your own business can be one of the most critical decisions one will ever make. The challenges are enormous physically and emotionally. Even finalizing a decision to own one's own business is daunting in itself. Many budding entrepreneurs cop out early into the decision making process.

Usually individuals wanting to strike out on their own were never responsible overall for: sales, marketing, human resources, customer service, quality assurance, operations, legal compliance, accounting, and much more. When owning a business, including a franchise ALL of those roles will often be carried out on a daily basis.

In principle owning a franchise will reduce the risk of not having conducted many of those roles for those brave individuals who ultimately decide to become a franchisee. The foundation of business format franchising is that the franchisor has developed a system, which has been proven successful, which can be duplicated by others …being franchisees.

When a business, whether it be associated with food, automobiles, building, or consulting (there are 75 franchise industries) decides to grow by franchising vs. a product or service distribution scheme, that business must develop documented systems which have contributed to that business' prior success, and which can be replicated by its future franchisees. The new franchisee will be trained and provided with, or access, to manuals covering the mission critical functions referred to earlier.

Selecting the franchise in itself is a serious and time-consuming process. While many new franchisees select a franchise after having a personal experience at a franchise outlet, most use the Internet to search for a franchise to buy. Since 2000 online franchise directory web sites have proliferated. While many are just bulletin boards, other web sites like Franchise.com more full information on each franchise opportunity and its requirements. When interested in one or more franchises of interest, one simply completes a request for further information form with their personal information on how to be contacted by the franchisor.

While some companies want only basic information, others will want the candidate to provide much more since they do not want to waste their time. Some companies receive literally hundreds of leads daily from seemingly interested prospects, many of which are not qualified to own their franchise. Expect to receive a phone call from the franchisor, and if you are genuinely interested in becoming a serious candidate, then it is imperative that you respond, in order to be considered a genuine contact.

franchise consultationThere are SO many franchises to consider how can you choose which one may be best for you? First have some knowledge of your financial capability. Do you have capital available to invest? Don't forget the possibility of obtaining additional capital for the investment from a loved one or a friendly investor.

Next, think about what you like to do, and what you do not like to do, and choose accordingly. If you don't like working with the public, then a retail business should not be considered. If you like working with children, animals, crafts, or involvement in sports, then target a franchise in that matching category.

After you speak with the franchise representative, if you are still interested, and if the franchise is interested in you, then you will be requested to complete a formal franchise application, which will involve typically a credit check and sometimes a background check. If you meet the franchisors guidelines, then to move forward then by law the franchisor is required to send or provide to you a disclosure document, known as a Franchise Disclosure Document (FDD).

Read the FDD carefully since it will include a vast amount of information on the franchise such as: history of franchise and its key principals, financial statements, litigation, franchise openings/closings/terminations, franchisee contacts, franchise agreement, requirements, and more.

One of your key questions to the franchise representative early on may be "how much can I make". By law a franchise salesperson cannot provide you with an Earnings Claim, unless it is included in the disclosure document. There is no legal requirement that the franchisor must provide you with an Earnings Claim, however some franchisors do provide it. If the franchisor has chosen not to provide it, then it remains important to contact other franchisees listed in the disclosure document. Other franchisees can answer many of your questions. Many franchisors will also require you to visit their headquarters before signing the agreement, so that you can both get to know each other better. This is known as Discovery Day.

Ultimately your new business' profit or loss will be determined by such factors as your franchise territory, site location (if not home based), and your individual efforts and commitment to following the system. While you will be your own boss, when owning a franchise you will not be "on your own". The franchisor will have also committed to fulfill their promises to you as stated in the franchise agreement.

© 2004 Franchise.com

Categories: Frequently Asked Questions, Buying a Franchise