Photo by Clay Banks on Unsplash
Indeed, there are some good companies from which to buy a franchise, and some not so good.
The franchisor must be a successful brand, respect on Wall Street if it’s a public company, and have a great game plan for the individual franchisees in their local markets. But that’s not all.
You want happy results from your online research and ultimate investment, and not be hit with a negative surprise. So do your research before buying a franchise.
The franchisor should be exemplary in seven categories:
— A great business plan
— Strong financials
— Effective operations/business processes
— Excellent branding
— Cutting-edge technology
— A healthy reputation
— Superb leadership, talent and human resources approach
But considering the seven categories is only a first step before buying a franchise.
You still need to double-check all information and be keenly aware of five principles.
The five principles:
1. Buying a franchise doesn’t make you a partner
Despite any implications, when you buy a franchise you’re still a customer of the company. It’s not a partnership. You will have to buy products from the franchisor. You’re not protected from failure of the company.
On the other hand, it’s true franchisees generally do better than organic startups. The failure rate of franchisees is better than startup companies.
Other than franchisor shortcomings, franchisees generally fail when they’re under-financed, the economy goes south, when they don’t adhere to the franchisors’ game plans for local marketing, or for dysfunction in operations or in customer service.
2. Your goal is different from the company’s
To be sure, you as a franchisee and the franchisor want to be successful. However, aside from branding, the two of you have different goals.
You want a turnkey business, and you’re responsible for the customer service to consumers.
The franchisor wants to grow by selling franchises to people who want a turnkey business, and to continually sell products to you.
Long term, it’s also possible that the franchisor’s has an exit strategy — it might be planning to grow the company so it can become an attractive target to sell out to an investment company or competitor. Either is likely to be OK for your future.
3. Understand the differences in your personal interactions
As a franchisee, you likely will not have a continuous relationship with the person who sells you the franchise. You likely are buying from an independent agent or brokerage firm. This means you won’t see that person again.
If you’re negotiating with an actual sales representative of the company, perhaps you will still be dealing with the person. However, your dealings will evolve into a different type of relationship.
4. Verify all ROI claims
Be wary of any return-on-investment claims made by the company. Any claims by the franchisor must be substantiated — a requirement of the Federal Trade Commission.
So be careful about the paperwork. Get all claims in writing. If they’re not provided to you, walk away from the deal.
5. Learn the FDD protections
Know the legalities — what the franchisor gets from you and what the company will do for you. All of this is covered in the FDD, the Franchise Disclosure Document.
During discussions before you buy the franchise, study the UFOC, which is the Uniform Franchise Offering Circular. The UFOC contains important information that needs your due consideration.
From the Coach’s Corner, editor’s picks for entrepreneurship articles:
Financial Tips for Taking the Plunge to Buy a Business — So you’ve decided to take the plunge in buying a business. Congratulations. I salute such bravery. Owning a business represents one of America’s great fundamentals — our free-enterprise system. You’ll have multiple financing options.
7 Basic Questions to Ask Before Buying a Business — Depending on your situation, there are beneficial reasons for buying a business. It works for a person lacking business-ownership experience as well as for a veteran business owner.
11 Tips to Safely Walk the Entrepreneurial Tightrope — For successful small firms, strong cash flow doesn’t just happen. Advertising firms to tech startups have a system. They plan and implement with precision. You, too, will stay afloat by being proactive using these strategies.
10 Scholarly Solutions for Selling More Products — Part one of a three-part series: How to grow your small business. Small business owners face more predators than ever, which makes decision-making about growth seem very challenging.
When there’s No Cash, 8 Tips to Organically Grow Your Business — Organically growing a business is lot like organic farming. Organic farmers pay attention to the signs of nature as a planting guide. They use rich sources of organic matter to build and maintain soil fertility. If you’re like many entrepreneurs, it probably makes sense to grow organically. You might not have another choice.
“We’re trying to be that franchise that year-in and year-out is competing for a championship.”
-Drew Brees
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