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Buying a franchise what to consider

Written by: Nick Strong

Article Overview: There is more to making a decision to buy a franchise than to evaluate the proposition. Considerations on how to manage the options available to you.

Buying a franchise what to consider

There is more to making a decision to buy a franchise than to evaluate the proposition.

Many prospective franchisees have never been in business on their own account so the first on the list for evaluation should be him or her self.

Self examination must be objective and realistic and should enable the prospective franchisee to reach a conclusion about what sort of franchise would be best after taking into account such factors as, for example:


What do I do best – manual work, selling, organising, mixing with people?
Does my family support me?
Am I capable of putting all my financial eggs in one basket?
Do I really appreciate the stress levels which go with self employment?
It is important to weigh up the pro’s and cons of franchising compared with other ways of going it alone. The pro’s include:

training;
benefiting from being able to use a tried and tested business system;
continuous back-up and support;
being part of a larger organisation or benefiting from the advantages which size produces, eg. bulk purchasing and pooled resources.
It is necessary to investigate the Franchisor and how long it has been in business; the shorter the period the more searching the enquiries the longer the period the more likely that there is a track record on which to check up.

Choices may need to be made between the franchisees on offer to be certain that the right decision is made.

There are danger signals:

Do not become involved in Pyramid Selling schemes ie. where selling participation rights is more profitable than selling the end products or services if indeed there are any;
Heavy initial fees and low or non-existent continuing fees;
a contract which does not match the promises;
a hard sell;
get rich quick offers;
unhappy existing franchisees in the system.
You are strongly recommended to contact the British Franchise Association and obtain a Franchisee Information Pack which will provide you with a further explanation.

Related Articles
  Buying A Franchise
  Franchising with all its Success
  Reselling Your Franchise
  Things to Watch Out for When Buying a Franchise
  Why Use a Franchise Consultant?

Article Tags: british franchise association, business system, choices, conclusion about, danger signals, eggs in one basket, franchisor, information pack, initial fees, participation, pooled resources, prospective franchisee, prospective franchisees, pyramid selling, right decision, self employment, self examination, stress levels



Related Forum Posts
How Do I Start Franchise? - How do I start a franchise? Before one can start a franchise it is important that you do your homework and research your market thoroughly so that you know what you are getting into. To start a franchise, it is vital that you: First, investigate all the franchise opportunities available to you by visiting franchise trade shows or by contacting a franchise agent. Also talk to family, friends or relatives who have set up a franchise, or who know some one who has set up a franchise. It is good to get as much information as possible from fellow franchisees, as not all franchises are good investments Second, talk to franchise owners that are in a franchise similar in to the one you would like to invest in. Ask them if they are pleased they are with their decision, and how well their business is doing. Is it meeting their expectations? Also ask questions about the franchiser and how responsive it is. It is important to determine the integrity of the franchiser you are interested in doing business with. Third, consult any and all advisers. Have an accountant review the audited financial statements the franchiser presents you with, and bring in a lawyer to help review all the legal documents before you sing them. Fourth, thoroughly read the Uniform Franchise Offering Circular, which is a disclosure document in which the franchiser must release certain information such as, any and all administrative, criminal or civil litigation currently pending or completed against the franchiser involving allegations of fraud or misrepresentation. It is a recommendation of the FTC that all franchisers supply a UFOC to prospective franchisees. Also make sure to verify and confirm the UFOC facts. Do a background check on the history and experience of the franchise and its employees. Fifth, compare other franchises. Look for franchises similar to the one you are interested in investing in, and see how well they are managed and financed. Sixth, know and be fully aware of all the terms and conditions of the purchasing contract you are about to sign. Seventh, research as much as you can. Buying a franchise is a complex process and should be approached with caution. The more information you know, the better it is for you. Remember, only you can determine if owning a particular franchise is right for you. When starting a franchise it is key that you evaluate yourself and see if a franchise is the right business investment for you. Investing in a franchise should not be taken lightly as it can be a risky business. It is important that you consider all the facts before you make a decision to invest in a franchise.
Re: Franchising Brokers vs Franchising Consultants - To correct some mis-information. Not using a broker/consultant will not save you any money. The FTC is quite explicit about that. The franchise fee is the same whether you use a broker, or if you go directly to the franchisor. Unlike the "MLS", each broker does have a limited number of franchises they represent, however, the more established brokers have created relationships with many more franchises then the portfolios of there counter parts. Some of the companies mentioned above are limited only to the franchises they have available to them. Consultants, like myself, have relationship with over 300 different franchises falling within the top 500. Some of my "high profile" counterparts represent maybe 125 franchises. Most brokers won't help or assist with the negotiation of the sales agreement, not wanting to offend the franchisor. And many do not have a clue as to what items are negotiable, and which items are not. Brokering is more then just matching up a person with a franchise or business, it is assisting the client through the whole process. Even though we are paid by the franchisor (by mandate), our first responsibility is to the client. Case in point, I just received a client that was working with one of the major "broker mills" that was mentioned in one of the above threads. They were almost sold a franchise, the day before the signing the franchise filed bankruptcy. I had stopped doing business with this franchise a year ago, and had an idea of the financial difficulty of this franchise (easily obtained). Why would a broker recommend a franchise that was near bankruptcy (and known in the industry)?...to close a deal, not to service his client. Shame on that broker, and that is what is giving brokers a bad reputation. Who the broker works for is not nearly as important as what service the broker/consultant can provide. Will he assist you in helping you reach an informed decision, based upon your skill sets? After that decision has been made will he assist you in completing the transaction to the greatest benefit to you? Buying a franchise is not a guarantee to success, but buying the wrong franchise is a guarantee of failure. And like many mortgage brokers, car salesmen, and others, they may never see or hear from you again, so why would they care? The decision to choose the right broker/consultant is almost as important as choosing the right franchise. They go hand and hand. Over 85% of my clients end up buying a franchise they had not thought of, they come in with a mindset. When the facts are laid out, the figures are gone over, the item 19 is explained, and options are given to them, that is when they can make an informed decision. You can't rely on websites that promote specific franchises, or rely only on what the franchisor tells you. That is the value of a quality franchise/consultant, to give you pertinent background information along with helping you "get the best deal".
Hello I am a franchise expert - Hello, I recruit franchise owners for successful franchise concepts based in the USA. Many of my franchises are looking to expand north to Canada in all major centers. I enjoy networking and answering questions about franchising. If anyone is interested in the franchise world or looking to buy a franchise then contact me. I have a wealth of information and like to help. Thanks for your time. Michael Somer
Re: Franchising Brokers vs Franchising Consultants - Franchise consultants are free and work with you without any obligation. they do not work for any one franchise but do get a percentage of the franchise fee when a franchisee that was registered with the franchise came from the consultant and the franchisee signs. They will try to match up your interests and skills to franchise businesses that are right for you. They can explain franchise guidelines and help you in any way they can. Franchise brokers usually get paid by the client and/ or franchise (generally get some type of commission). Additionally, they can get points or referral fee off the deal if they refer you to a lending resource too after they sell you on a franchise. Typcally they will try to sell a prospective franchisee on a larger deal so they get a larger commission.
Re: Which franchise would you buy? - The franchise to buy, the one that will succeed is the one that is either underrepresented or not represented in the community. Look at your community, identify what service is missing. That is the franchise to pursue. Too many people buy a franchise based on their "heart". A franchise is a "widget". I have found that once people began to investigate a franchise they had never thought of, but find their is a need; the entrepreneurial "gene" kicks in and they get excited. They began seeing the possibilities of success, and as they uncover the nuances of the franchise, they become more interested. It is the uninformed that are uninspired.


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