Franchising

1. Question the franchisor: The decisions that you make about your potential business will need to be based upon information from very pointed questions to the franchisors. Questions such as, what is the initial franchising fee. These fees vary from franchise to franchise and could run as high as several hundred thousand dollars.

More than likely you will also be required to pay an advertising fee to help promote the franchise. You will need to know the amount of that fee, or how it is figured (sometimes figured on a percentage of sales) and how much of that is used for local advertising and how much for national exposure.

Royalty payments are payments to the franchisor for the use of the franchise name. These are usually figured as a percentage of weekly or monthly gross sales. Again this number can vary from franchise to franchise and should be well understood before proceeding.

Find out the terms of the franchise agreement, including the period of time that the agreement will last (usually 5 years), how can you terminate that agreement and what the guidelines are around the franchisor terminating it.

Finally, some franchises will require you to do financial reporting each and every day along with upholding the uniformity of their system in each franchise. Inquiring if there is some flexibility will assist you in making a better decision about the franchise that suits your needs. You will also need to ask yourself if you can live with these processes or if it too stifling to allow you to exercise your own judgments in business.

2. The U.F.O.C. (Uniform Franchise Offering Circular). Much of the information above will be listed in the UFOC. It will be extremely important for you to peruse this circular very closely and even have a professional review it before signing any contracts.

3. Now if you have gotten this far with a particular franchise you will want to talk to someone who is actually running their own franchise. Try to get a couple of different prospective of the business. You must realize that some of the ones you will talk to will give you a negative outlook on the business. Your challenge will be to sift through all that to make the best decision for you and your goals. Below is a list of possible questions that you may want to ask the franchisee.

o Are you happy with your franchise?

o What kind of income is you franchise generating?

o If you had it to do over again, would you buy the same franchise or another?

o Was the training thorough, how long was it, and did you like it?

o Are the franchise fees you are paying the same as your interpretation of the agreement, or are they more?

o What type of business experience did you have before purchasing the franchise?

o Were there any hidden franchise fees or unexpected costs?

o Did the franchisor estimate the amount of operating cash you would need correctly or did they underestimate?

o Is your territory big enough to hit your goals?

o Can you sell other products or do you have to sell and use only theirs?

o Does the franchisor advertise as much as they said they would?

o Does the franchise give you an excusive territory for the length of the franchise period.

o If needed, will the franchisor assist you in finding a location that is suitable

o What determines a territory

Before you make any decisions, make sure you get any agreements in writing and consider getting professional advice. Check with a lawyer for the legality of the business and to make sure you fully understand the contract. An accountant can review the finances and promised income. The money and time spent seeking professional advice can save you from making a bad business investment.