Franchising

When choosing a new franchise to invest in it is vitally important that you read through each part of the disclosure document and particular the section on current and former franchises. In this document section about other franchises that have been bought, it is key to establish which franchises are in operation and making a success of their new franchise and which are not.

Look at how many people have bought a franchise in your locality as this will increase the competition and make it more difficult for you to generate business. It is also key to find out which franchises have been terminated, if this number is high then this may indicate problems with the business model and you should not buy a franchise with this company. Some companies try to hide the failed outlets by buying these failed outlets and putting them under the companies name as a current franchise opportunity.

If the new franchise, that is offered to you in your location, is an existing outlet then check how many previous owners have occupied it and over what period of time. If the number of owners is high over a short period of time then the franchise opportunity for this outlet is not good or the franchisor has not supported the area sufficiently.

When looking over the disclosure document in this section it should list all of the franchisees that own a current a franchise and all the franchisees that left the franchise over the previous year. You must contact these franchises to establish that the franchisor is reliable and true to their word before you buy a franchise from them. This is the most reliable way of verifying the franchise and making sure you are investing in the right franchise opportunity. Try to visit as many of the new franchise owners as possible to ask them questions about the running of the business and how it is working for them. You must see for yourself the type of business and clients they are bringing in to give you a better understanding of how a new franchise operates.

Here are a few questions to ask the current and previous franchisees to make a judgement if you are going to buy a franchise.

1. How long has the franchisee been operating the franchise?
2. How much did the franchisee pay for the new franchise?
3. Were there any hidden costs involved with the start up of the franchise?
4. How long did it take the franchisee to start making a profit?
5. Is the franchisee happy with the product or service they are offering?
6. What background did the franchisee have before deciding to buy a franchise?
7. Was the franchise training adequate for the role?
8. Is the franchise advertising your product, service and area?
9. Has the franchise fulfilled their contract obligations?
10. Would the franchisee recommend the franchise opportunity?

Some franchises may give you a list of selected franchises that are doing well and they also may be paying them a set amount of money for every referral, so be careful to talk to the right franchises. Take into account all of the answers to the above questions and you will be able to make a judgement whether the franchise opportunity is right for you.