Investing in a new business always is full of stress and needs you to investigate various aspect of the business and to ponder a lot. When it comes to investing in a franchise business, part of your concerns can be taken care of by following a standard route for investigating the opportunity. Also there are a lot of information available to you as the franchise industry is a highly regulated market by federal government. Also some States add more regulations to the ones required by Federal Government and as a result of that if you intend to buy a franchise you should be given access to a lot of information that might not be available to you in case of starting a new business on your own.
For buying a franchise you really should start with evaluating yourself and your current condition. Factors such as goals, interests, passion, skills, desired lifestyle, family members, etc. can affects you being a successful business owner in the future. Also your financial situation including available liquid capital that can be comfortably utilized for the purpose of your new investment plays a huge role in selecting a franchise for consideration. Sometimes it is hard to come up with some good franchise options because of some uncovered requirements or because there are many franchises in the industry. At this point use of a franchise expert can be a great help in finding some good options for you.
Upon finding one or two options to consider you normally enter a standard process for investigating that franchise. Here is six step process that you should take when consider investing in a franchise business:
- Initial Interview
- Qualification
- Reviewing the Franchise Disclosure Document (FDD) and Franchise Agreement
- Validating the Franchise
- Visiting the Franchisor’s Home Office
- Taking the final Yes or No Decision
Step 1: The Initial Interview
In this step you will be contacted by a franchise sales representative (or a franchise consultant) and will have an initial interview and presentation of the franchise concept. Keep in mind that investing in a franchise is a two sided way: both you and the franchisor need to know about one another. This initial contact will be made by telephone and you might be asked questions about your background, your skills, the reasons for considering the franchise, what makes you successful and what you are looking to accomplish. In turn, you will have a chance to ask questions and get to know the franchise better including what makes the franchise unique and if it is the opportunity you are looking for or not. Normally for moving to the next step you need to confirm to the franchise representative or consultant that you have enough amount of liquid capital to invest in the franchise and that your networth amount also meets the franchisor’s requirement.
Step 2: Qualification
In this stage the franchise development manager in your area will contact you either by phone or in person to gather more information and offer more specific details. The overall objective of this step is to determine if there is a fit from franchisor’s perspective and to develop a kind of rapport with the candidate. Please note that you are not obligating yourself to buying a franchise by answering the questions or filling out the application forms. Franchisors use these forms to determine whether from their prospective you match their profile of a successful franchisee or not. Some franchisors ask you to disclose information such as social security numbers, banking account numbers, and other detailed information. At this stage they really don’t need this information and generallt it is OK if you leave this information blank for now. Typically they don’t run credit reports or validate banking account balances until they are ready to either invite you into their office or offer you a franchise.
Step 3: Reviewing the Franchise Disclosure Document and Franchise Agreement
Normally franchisors require you to fill out an application form to get to this step. The purpose of this application is to get more information about you and for you to show that you are serious in considering the franchise. in this step you will be handed over a document called Franchise Disclosure Document or FDD and you will conduct a thorough study of the document to make sure you and the franchisor are in material agreement on major points. From a business perspective, you might want to know if the disclosure makes sense or can you live with the terms and commitments of the agreement?
Also you can bring the FDD to an attorney who will review it from legal perspective. At this stage however, conducting a legal review may be premature and an unnecessary expense, according to some experts. They recommend postponing this to a latter stage until you gather more information and evidence about the franchise and make sure that is a perfect match for you investment. Nevertheless, it is important to know about the legal issues of the agreement and it is completely up to you to use legal expert advice at any point in the process. If there are any commitment and obligation that you can’t live with, it is better for you to end the process here.
Step 4: Validating the Franchise
Validation of a franchise is the process of calling or meeting with exiting franchisees and the ones who left the system to discover more details about the franchise and to see if they validate the franchise for you. In this step you will interview franchisees, gather data, compare the information you receive from franchisees with what you received from franchisor, and determine whether the franchise system will produce your desired result with high degree of probability. Here is where you test the veracity of the franchior’s systems and determine whether the franchisor provides you with enough support and training and whether the business model helps you to develop your own business with the profitability you expect to have in the short and long run. If the franchise appear to produce you desired lifestyle with a high degree of probability, it’s time to invest in professional advice from a franchise attorney and an accountant.
Step 5: Visiting Franchisor’s Home Office
Many franchisors set aside one or two days a month to host prospect franchisees in their headquarter. Go to their corporate office and meet with their decision makers. Shake their hands and look them in the eyes and ask them tough questions that you might have. It is not logical to do business with people you have not met yet. You need to know the franchisor’s leadership team and see how much effort they have put into developing a system for the franchise.You must have already evaluated the business model against its ability to produce your desired results. Now it’s time to evaluate your trust level of the franchisor’s leadership and key management.
Step 6: Taking the final Yes/No Decision
If you have gone through the previous 5 steps diligently, you have done an outstanding job of taking close look at what takes to win as a franchisee. As you get closer to the end of the process you will experience intense emotions such as fear and anxiety. This is normal and they will be disappeared as soon as you make a decision. Now it is time to put everything together and to use the information you have gathered so far to make the final decision. Notwithstanding what your final decision is, it is more important to have a defendable decision. That’s why it is important to base your decision on facts and data you have gathered so far.
Please call us at (949) 228-6639 or simply fill out the form on this page to schedule you free consultation for buying a franchise.
Reference: Street Smart Franchising
