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9 Questions to Answer Before You Buy a Franchise

Franchise agreement signing

Franchise agreement signing

I have just read an article from The New York Times that covers the questions you should ask to yourself and a franchisor before deciding on buying the franchise of your dream.

The article opens up some facts that, to tell you the truth, somewhat against franchising, in a sense that you should take great(er) care to invest your money in a franchise opportunities, as many facts and pitches made by the franchise companies are misleading to the ‘untrained eyes.’

I enjoy reading and benefit greatly from the article and would like to share the 9 questions to ask with you.

9 questions you should answer before buying a franchise

  1. Who are you?
    You should ask yourself whether franchising is right for you and whether you are ready with all the challenges, as franchising is no walk in a park. You should also ask yourself which category of franchise will suit you – Is it home-based, business services, eateries/restaurants, or the others?
  2. Should you hire experts?
    From the article I mentioned above: “Franchising is full of sad stories of people who sign agreements without fully understanding the implications” – a sad fact but true. You do need help from experts – According to Mr. Sniegowski (Blue MauMau), you should hire experts in three areas: marketing, accounting and legal. And do make sure you hire specialists, not generalists. Make sure you also consider consulting with a franchise consultant – the trusted and reputable one, that is.
  3. What is the best business opportunity?
    Evaluate, evaluate and evaluate the opportunities presented to you. Will the opportunities you are interested in thrive well through the ups and downs of economic situation? Again, if you can’t perform strong evaluation to the business and market potentials, do consider to hire a professional.
  4. Who is your franchisor?
    An interesting fact from the article: Mr. Bibby, a franchise consultant, says, “Most — I’ll say a minimum of 70 percent of all franchises — are not worth the powder it would take to blow them up.” – That’s really a large percentage, and a reason why you should learn as much as you can about a franchise company before you invest in it.
  5. What do other franchisees say?
    I also recommend this in my past article – Talk with other franchisees and listen to what they have to say. Alternatively, you can visit the business premise and observe, or you can get a job or volunteer in the franchise company you’re after.
  6. Can you afford it?
    From my own experience, what was informed to you regarding the initial investment, you will always need more money to cover the initial investment. The initial investment informed to you by a franchise company will likely to be estimates and averages (and my suggestion is for you not to consider these estimates and averages too seriously.) I totally agree to what’s written in the article: One old adage bears repeating – It will cost twice as much and take twice as long.
  7. What are the legal terms?
    Understand and validate what’s inside a franchise agreement and UFOC (uniform franchise offering circular.) As they are legal documents, consulting with a lawyer specialising in franchising laws are highly recommended.
  8. Could you do better as an independent?
    On paper, franchises offer more advantages compared to the independent businesses. However, the fees, level of supports and franchisor values will govern the likelihood of the franchise opportunity to succeed. Heed this research referred in the article: Timothy Bates, a professor at Wayne State University, studied a sample of more than 20,000 new businesses that started between 1984 and 1987; by 1991, 35 percent of franchise units had gone out of business compared with 28 percent of independents.
  9. Can you negotiate?
    Although terms in the franchise agreements are generally tough to negotiate, especially those of strong franchisees, it’s best for you to try negotiating the terms. A suggestion from the article I agree with: If the terms in a franchise agreement can’t be negotiated, walk away. Otherwise, compromising by saying yes to all stated in the agreement will enable the franchisor to ‘own’ you.

All in all, the 9 questions will help you slam the urban legends of franchising (i.e. 95% success rate) and aid you in choosing the right franchise opportunities for you.

Again, it’s your due diligence to learn as much as you can about an opportunity you’re after, with a single purpose: So you and I don’t lose our money, gone bankrupt and blame franchising as the culprit of your business failures.

Ivan Widjaya
On choosing THE franchise opportunity for you
Image by shho.

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