How to find and evaluate a franchise

This is extremely important, Evaluate yourself first.

The first and most important step in this process is to really be honest with yourself about who you are, your talents, strengths, weaknesses, likes, dislikes, wants, needs, current financial status and financial goals. All of this information is going to be key in finding a franchise that has the components to meet your overall goals and needs.

A franchise consultant can help you carefully evaluate yourself to determine if you really want to own a business, if a franchise business is what you want and if you are in a position financially to invest in a franchise. After a consultation you should be able to make a decision about your next step and feel good about it. Considering you decided you are able to fund the business, what your budget is and you do want to explore franchise options, your consultant will schedule a franchise presentation call a few days out and start looking for available franchises that match your needs and budget.

What is a consultant, do I need one, and how do I know the consultant is good >>>Learn More<<<

In a few days you will have your scheduled franchise presentation call with your consultant. Here is what you can expect on this call. Your consultant will give a brief recap of your consultation and what was most important to you in a franchise business then ask if you have any questions before getting into the presentation of franchises.

You should have something to write with and some paper to take notes and write down your initial questions, you will probably have a great deal of questions and want to ask as you go, but it is best to let your consultant give the presentation then ask your questions after. Your consultant will likely present 3 franchises each in a different industry with the role of the owner being something you like and are good at.

There is a good chance that none of the businesses will excite you right away because you may have a certain brand or kind of business in your head from an experience you had or something someone said. It is important to keep an open mind and not make any assumptions about a business before honestly hearing what the role of the owner is and having a conversation with each of the franchises.

Keep in mind the consultant works closely with these companies and knows the profile of their most successful owner’s so the companies presented were chosen based on information that would suggest you match their ideal owner.

I just can’t see myself doing any of the businesses presented, I don’t have passion for them… >>>LEARN MORE<<<

At this point you are not making a decision to buy anything or committing to buy a franchise at all. You are simply having a conversation with each franchise the consultant presented. Your first call with the franchise companies will give you a better understanding. During these calls you may decide you would like to talk with one or more of them again to learn more about their business. Your consultant will be walking you through the process and giving you helpful tips and resources es along the way.

At the end of this call a third call will be made to go over your first franchise calls. After the call your consultant will contact each franchise and let them know you are ready to hear from them. Since your consultant already checked for available territory with each franchise, they are expecting this call and are ready to engage with you. You will hear from each company with in 24 hours usually by the end of the day you will receive a welcome email with instructions to schedule your initial overview call.

If you are in the beginning stages of the franchise investigation process, reading a good book or two about franchising can be very helpful.

These two books have been around for a very long time and all of the information in them is timeless. 

These books can be purchased through the provided links below.

Street Smart Franchising here

The Educated Franchisee here

Process of Mutual Evaluation

An important thing to keep in mind while evaluating franchises is that it is a process of mutual evaluation. In the first section we learned your consultant will probably present you 3 or 4 franchise opportunities which they feel match your talents, skills and pocket book. Without the consultants help, you could be trying to navigate through over 3,000 franchise companies and this could be overwhelming. You should also understand that it is unlikely that any one person contacting the franchisor will turn out to be a great match. You and the franchisor are trying to determine if the fit is right.

This process will require time and effort from both parties, each will provide detailed information until a point is reached where each side can make an informed business decision. If either party comes to the realization that this is not the right match, they simply inform the other party and move on.

A common misconception is anyone can buy a franchise if they have the money. This may be true with some less than ethical operations. A good franchisor will only award someone a franchise they feel fits the profile of their successful owners’. Their first test is to see if you will make the appointments you set and if you did the homework in order they gave you. People that follow through with appointments and complete homework in sequence show they can follow a process and proven system.

Franchises are regulated by the Federal Trade Commission (FTC) and are required to have an up to date Franchise Disclosure Document (FDD) registered. This document contains everything about a franchise from the owner’s, to the financial s, current and past franchisees, and lawsuits. If a franchise company is selling to sell, they may have a lot of failed franchises or lawsuits and it will show in the FDD.

Step 1 – General Information

The franchisor you are evaluating will begin by providing you with an overview of their company (typically a brochure and webinar presentation). Then they will ask to talk with you by phone and possibly give another webinar presentation. Assuming each party is still interested based on the information you both have received, you will proceed to the next steps.

Step 2 – The Franchise Disclosure Document (FDD)

This 23 item document, commonly referred to as the FDD, is the Federal Trade Commission (F. T. C.) mandated disclosure document that gives you everything you need to know about the franchisor. The structure of the FDD is standard with any franchisor and must include information on a variety of topics. There are a few States that require some minor tweaks, but most are pretty standard. The major subject areas included in the FDD:

  • 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 is usually attached to the FDD but may be provided separately at the discretion of the franchisor.

Some franchisors also include an earnings claim in the FDD. Though they are not required to do so, this can save you a lot of time if it is included. Even if they include an item 19 in the FDD, you will want to validate this information with franchisees during your validation calls. If, earnings claims are included in the FDD, legally it has to be 100% accurate.

Carefully review the FDD and write down your questions or issues to discuss with the franchisor. It is a good idea to consult with a franchise attorney to review material you have questions about. Your consultant can help you find a franchise attorney and other resources.

Step 3 – Franchisee Validation Calls and Visits

One of the most valuable sources of information on any franchise system is the existing franchisees. You need to plan on calling and, when possible, visiting a number of the existing franchisees during this process. Calling and visiting with a sufficient number of franchisees to ensure you know what you are getting involved with is very important.

Although you want to find the overwhelming majority of franchisees to be happy and supportive of the franchisor, it is important to try to find an unhappy franchisee too. When you do, not only listen to the complaints but also try to determine what makes this franchisee different from the rest. If you find yourself identifying with the positive ones and feel the negative franchisee is not at all like you, then you should be fine. If you find that you are more like the person who is unhappy however, this is probably not the right franchise for you.

The following list covers the principal areas you want to evaluate during these calls:

  • Training Programs – How well is the initial training programs and do they support and prepare the franchisees for opening and running their business.
  • Opening Support – Did the franchisor make it easily for the new owner to get the first unit open and operating? Was there assistance in site selection, lease negotiation, construction and design assistance, financing assistance, permits or any other factors unique to getting this business up and operating?
  • Ongoing Support – Is the franchisee receiving ongoing support and services from the franchisor. Are they solving any problems that come up in the running of their business?
  • Marketing Programs – Most franchisors collect marketing dollars from every franchisee for a marketing fund that is spent to promote the brand. Are the franchisees happy and supportive of the way the franchisor uses these funds? This is typically where you will hear the most complaining about any franchise you look at.
  • Purchasing Power – Does the franchisor use the collective buying power to get discounts on supplies and inventory beyond what an independent operator could? This can be a big advantage to joining a well run franchise as it could offset much of the fees associated with being a franchisee.
  • Franchisor and Franchisee Relations – It is good to determine what the franchisees feel about the franchisor in general. Is the franchisor supportive, caring and focused on their success? Are they responsive, effective, organized, and trustworthy? Make sure you have a good feeling about the values of the organization and that they are consistent with your values.
  • Investment – Included in the FDD it will give you a wide range for the investment required. Use the validation calls to narrow that down to a reasonable and conservative estimate of how much capital you will need to safely operate until you break even and make a profit. You what to know how much it is going to cost to get started and how much is needed until the franchise is paying for itself. Talking with franchisees will usually answer this question.
  • How much can you earn – It is very important that you have a strong understanding of where the average unit is in terms of earnings. You should know the answers to the following questions: How much money does the typical unit make given a specified length of time in business? How long before a typical unit starts making money after opening? What is the range of answers for these questions? If you are simply not able to determine these answers to your satisfaction in your research, do not buy! Tell the franchisor of the problem and that you cannot proceed unless you have these answers.

It is suggested and is a good idea to bring up the subject of earnings as the last point in validation calls or visits. Most people are reluctant to discuss their income with a stranger and you will find the franchisees are more willing to open up regarding financial s after spending some time visiting with them. At that point they know you’re not a competitor trying to get information but rather a serious prospective franchisee who needs the information to make an informed decision. Months or years earlier they were all in your position and needed the same information you are asking.

Step 4 – Review the System Documentation

Top franchise companies have documented their systems, operations and marketing strategies in a direct and easy to understand operations manual. The franchisor will probably not give you a copy of the actual manual, but they can provide the table of contents or index of all support manuals. The FDD should provide supporting documentation that the manuals exist.

Step 5 – Meet the Franchisor at Discovery Day

Towards the end of Discovery if you are feeling like it is a good fit, and the franchisor is feeling the same way, they will likely invite you to a meet the team day or Discovery Day at corporate headquarters. Franchisors usually facilitate a discovery day once a month and have several prospective franchise candidates visit for a day or two. This is a great chance to meet the support staff and get any final questions answered.

Getting to know these people is extremely important since you will be working closely with them to build your franchise business. Do you feel comfortable and like part of the family? Do they seem like good people? Do they know what they are doing? Do you feel like you can call and get advice? Who will be providing operational support and training and do feel confident in their abilities. Be sure any final questions or issues you have are addressed at this meeting.

Sometimes at the end of discovery day they will award a franchise to you and sometimes they will give a couple of days to cool down then call or send a letter to award the franchise or let you know it was not a fit.

Step 6 – Making a Decision

If you followed the process outlined above, this should have taken about four to eight weeks to complete. At this time you have now finished your Discovery process and have all the information you need to determine if this franchise is a fit for your needs. It either is or it isn’t. Either way, it is time to make a decision and move on. Does the company meet your wants and needs? If so, do it. If it doesn’t, move on to the next one.

Start the discovery process  >>>fill out the General Franchise registration Questionnaire HERE<<<

After filling out the Questionnaire >>>Schedule a Consultation HERE<<<

If you found value in this information or there is a topic you would like me to cover, please let me know by leaving a comment in the comments box at the bottom of the page.

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