How To Buy A Franchise - Step 2

Last month we talked about Step 1 of How to Buy a Franchise, which was to do a thorough self evaluation of both the skills you will bring to the position and also the lifestyle you are looking for as a business owner. From the questions we had you answer, you should have come up with a better idea of what you want and need in a Franchise opportunity and a model to use for your research.

Now it is time to begin looking at individual companies. You can do this on your own by finding companies on the Internet and doing research, then narrowing down the list to those that seem most probable for your needs. Another way is to work with a franchise consultant, also known as a broker, who will narrow down the possibilities, giving you a short list of companies who match your skills and requirements. Keep an open mind. You may have your heart set on a particular opportunity, such as fast food, only to find you don’t have the financial qualifications and the business won’t provide you with the lifestyle you want. Focus on finding a business that’s a great fit – regardless of the particular industry.

One place to begin in your franchise research is the financial requirements of a particular business. A Restaurant Franchise may require you to have $1,000,000 in net worth and over $350,000 in liquid capital. On the other hand, a home-based service franchise may only require the buyer to have $15,000 in liquid capital. There are opportunities in almost every price range and, surprisingly, the amount you invest does not portend the amount of money you will make. There are low-cost opportunities with a high ROI (return on investment) and high-cost opportunities that may take years and years before you can break even.

Next, look at your list of strengths and weaknesses. If you would not enjoy managing a crew of teenage employees but would enjoy selling to other business professionals, look at B2B opportunities. For those who want to feel a part of the c om munity they serve, consider a children-focused franchise, a coffee shop or drycleaners – all businesses that draw custom ers from the immediate area. Consider also the experiences you’ve had in your career. Although most franchise companies will train you to proficiently run your franchise, there are s om e industries, such as food and beverage, where previous experience is helpful if not required.

You’ll probably begin your research online and there are several good sites to help you, such as www.bison.com, which lists franchise and business opportunities for sale along with a synopsis of the business and qualifications for a potential buyer. You also may want to visit local Franchises in your area to get a feeling for what type of business you’d enjoy running. Compare the requirements of each business against your personal research model. This is a process that can and will take a great deal of time. There are thousands of franchised businesses in numerous industries so don’t be discouraged if you don’t find the perfect business right away.

Once you’ve come up with a list of interesting possibilities, contact the franchisor who will check for available territories in your area and then provide you with overview information on the company (typically a brochure and video package). In return, they will ask you to provide them with personal information (by filling out a questionnaire) to determine if you have the general characteristics they are looking for in a franchisee. Assuming that each party is still interested based on this information exchange, you will proceed to reviewing the company’s UFOC.

 The Uniform Franchise Offering Circular, commonly referred to as the UFOC, is the F.T.C. mandated disclosure document that gives you a wealth of information about the franchisor. The form and composition of the document is standard with any franchisor and must include information on a variety of topics of interest to you. The major subject areas include:

• The history of the franchise and its officers and directors.
• A complete description of the business to be franchised.
• All costs and fees that you will be subject to under the agreement.
• All obligations of either party to the other during the term of the agreement and thereafter.
• Any relevant litigation history of the company or its officers.
• 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.
• Audited financial statements for the previous three years for the franchise company.
• A list of the existing franchisees.
• A complete copy of the actual franchise agreement document is usually attached to the UFOC but may be provided under separate cover at the option of the franchisor.

At some point in the process you may want an attorney familiar with Franchising to review the UFOC and franchise agreement with you. Most of the document will be easy to understand but item 7, the financial picture, may take the help of an attorney or CPA to interpret. Items 5 and 6 are important as you do not want to become involved with a business that has substantial problems.

If after reading the UFOC you continue to be interested, the next step is your due diligence process which involves calling current franchisees, listed in item 8, in the franchisor’s system and asking them questions about the business. Prepare your questions in advance, such as the value of the training provided, the quality of the ongoing support and whether they feel they are meeting their financial goals. Call or visit with a sufficient number of the existing franchisees to ensure you have a sense of the prevailing attitudes of the group.

When you find a company with a majority of happy franchisees you’ll know you are on the right track.

By now you’ve narrowed your choices down to one or maybe two companies and you are ready to meet in person with key personnel in 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 in the building of 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.

If you have been diligent, the entire process outlined above should have taken about two to four weeks to complete.

Your search and investigation are c om plete and you have your pen in hand, poised above the franchise agreement. What are you feeling? Euphoria? Excitement? Eagerness? Most likely you are filled with another emotion – FEAR! This is a very big decision and most women are just not trained to take big risks in life. But now it’s time to listen to your head: Do you have all the information you need? Has your research been thorough? Do the franchisor’s criteria match your personal model? Are you ready to take control of your future? Then go for it!

You can’t go forward by standing still and franchise ownership may help you reach your personal goals – and beyond!

Kim Ellis is president of Bison Advertising, Inc., a leading online resource for franchises and business opportunities.  Drawing from a diverse background in franchising, marketing and operations, Kim specializes in Internet marketing, lead generation and branding.

Prior to Bison, Kim served as vice president of FranChoice, where she helped establish one of the industry’s most successful franchise referral networks. Her responsibilities included franchisor relations, brand management and lead generation. Prior to FranChoice, she served in executive positions for Regis Hair Salons, Premier Hair Salons International, and for a business-to-business marketing agency in Minneapolis. Her franchise experience started with a family-owned Schwinn Bike franchise and extended to her first position after college with Great Clips for hair.  Currently, Kim serves as chairperson for the International Franchise Association (IFA) Women’s Franchise Committee and as a member of the IFA Supplier Forum.