Now
What?
By: Jeff Elgin
You’ve
given it a lot of thought and carefully considered the alternatives. You’ve
decided you have what it takes to succeed. You want your
own business. More specifically, you’ve decided
you want a franchised business.
What do you do
next? What can you expect from franchise companies? How
will you know when you’ve found the right one for you? Let’s
deal with these questions in the order that you’ll face
each issue.
Before you Begin
The
first step is to carefully evaluate yourself. What are
your strengths and weaknesses? What do you like to do
and what makes you happy in a work environment? What
makes you unhappy or frustrated? Do you like sales, working
with customers, managing employees?
Are you technologically up-to-date and comfortable with change? What
is your tolerance for risk?
Next,
list the characteristics that you want in a franchise business. How
important are financial results? What are your realistic
investment and income goals for a business? What are
your feelings about risk and status issues? How many
hours per week are you willing to work (and what schedule do
you want to have)?
The
answers to these questions will tell you what you need to find
in a business to match your preferences and desires.
You’ll have a picture of what the future will be like for
you as a business owner. Now you just need a process to
find and investigate individual franchise companies and determine
if they fit perfectly into your plans.
Finding
Franchise Companies
There
are many sources of information concerning franchise opportunities. These
range from books and periodicals to advertisements to a wealth
of sites on the internet. There are thousands of possible
franchise opportunities for you to consider. Just sorting
through all these options can be a daunting task.
The
first step should be using a strategy to rapidly narrow down
these possibilities. Consider the characteristics you’ve
identified above. Look at industry groups or sub-groups
first rather than individual companies. At a glance,
does a particular industry group appear to match the characteristics
that are important to you?
For
example, let’s say you’ve decided that you want
a franchise that will involve working normal business hours,
that will have very few employees to manage and that will have
a total investment of $100,000 or less. These criteria
will cause you to eliminate many retail and food franchise
industry segments due to issues with hours and employees. You
can then further reduce the mix through looking at investment
requirements.
If
you don’t want to do this yourself, use a franchise consultant
to assist you (many offer this service for free). The
bottom line is that you need to find companies to investigate
that appear to have what you are looking for. The alternative
is wasting a lot of time and effort. Once you’ve
identified some companies that look attractive on the surface,
it’s time to learn more about them.
Process of Mutual Elimination
You need to keep
in mind during your investigation of franchise companies that
this is a process of mutual elimination for both you and the
franchisor. You might find exactly the franchise you’re
looking for on the first try but that is highly unlikely. You
also understand that it is unlikely that any one person contacting
the franchisor will turn out to be a great match for them.
Therefore you are both trying to determine if the fit seems right.
Each step in
the investigation process requires more time and effort for
both parties.
You’re both trying to reach the point where you have sufficient
information to decide whether you belong together. If either
party comes to the realization that this is not the case, they
should immediately notify the other and then move on.
There
are five main steps in this investigation process that are
common to most franchises. These steps begin with you
contacting the franchise company that you have decided you
want more information from.
Step
One –
General Information
The
franchisor will begin by providing you with overview information
on the company (typically a brochure and video package). They
will then ask you to provide them with additional information
on you (by filling out a questionnaire) to determine if you
have the general characteristics that they are looking for. Assuming
that each party is still interested based on this information
exchange, you will proceed to the next steps.
Step
Two - The Uniform Franchise Offering Circular
This
document, commonly referred to as the UFOC, is the F. T. C.
mandated disclosure document that gives you a wealth of information
about the franchisor. The form and composition of the
document is standard with any franchisor and must include information
on a variety of topics of interest to you. The major
subject areas include:
1. The
history of the franchise and its officers and directors.
2. A
complete description of the business to be franchised.
3. All
costs and fees that you will be subject to under the agreement.
4. All
obligations of either party to the other during the term of
the agreement and thereafter.
5. Any
relevant litigation history of the company or its officers.
6. Any
business failures, ownership transfers, franchise agreement
terminations or other information relating to the success rate
of the existing units in the system.
7. Audited
financial statements for the previous three years for the franchise
company.
8. A
list of the existing franchisees.
9. A
complete copy of the actual franchise agreement document (this
may be provided under separate cover at the option of the franchisor).
A few franchisors
also include an earnings claim in the UFOC document. Though
they are not required to do so, this can be a real time saver
for you if it is included. Even if it is included in
the UFOC, it is still imperative that you discuss this subject
with franchisees during your fact-finding calls and visits.
Step
3 - Franchisee Calls and Visits
The most valuable
source of information on any franchise system is the existing
franchisees.
Whatever you find the prevailing attitude of the existing franchisees
on any issue to be, it will almost certainly be your attitude
on the issue if you decide to become a franchisee. Visit
with a sufficient number of the existing franchisees to ensure
you have a sense of the prevailing attitudes of the group.
Though you want
to find that most of the franchisees are happy and supportive
of the franchisor, sometimes they’re not. Listen
to any complaints, but also try to determine what makes this
franchisee different from the rest. If you find you identify
with the positive ones, 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 principle areas you want to investigate during
these calls:
1. Training
Programs – How well do the initial training programs
and support prepare the franchisees for opening and running
their business?
2. Opening
Support – How easy did the franchisor make the process
of getting the first unit open and operating?
3. Ongoing
Support – How effective is the ongoing support of the
franchisor in terms of helping franchisees deal with the everyday
problems of running their business?
4. Marketing
Programs – Most franchisors collect marketing dollars
from every franchisee into a pool that is spent to promote
the brand. Are the franchisees supportive of the way
this process is handled?
5. Purchasing
Power – Does the franchisor use the collective buying
power of the total system to get discounts on supplies and
inventory beyond what an independent operator could achieve?
6. Franchisor/Franchisee
Relations – Is the franchisor supportive, caring, focused
on their success, responsive, effective, organized, and trustworthy?
7. Investment – The
UFOC will give you a wide range for the total investment required. Use
the franchisee discussions to narrow that down to a reasonable
and conservative estimate of how much capital you will need.
8. Earnings – It
is critical that you have a strong sense of just where the
average unit is in terms of earnings. How much money
does the typical unit make? How soon does a typical unit
stat making money after opening?
It is always a good
idea to bring up the subject of earnings as the last point
in your franchisee visits. Most people are reluctant
to discuss their income with strangers and you will find the
franchisees are more willing to cover this subject after you
have spent 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 will need the
information to proceed.
Step
4 –
Meet the Franchisor
At some point
in the process of investigation, you will want to have personal
meetings with key personnel of the franchise company. This
might be possible in your local market or you may need to travel
to the headquarters of the as
“discovery days”. These are structured events
where you can go to a specified location and know that many of
the key franchisor staff will be available.
Be sure to get to
know those people you will be working most closely with in
the building of your business. You would expect the President
of the company to be an impressive person but that’s
not who will be answering your call when you have a problem. Find
out who will be providing the operational support and training
directly to you and form an opinion about their competence. Make
sure that any remaining questions or issues you may have are
addressed at this meeting.
Step 5 – Make
a Decision
If you have been
diligent, the entire investigation process outlined above should
have taken about two to four weeks to complete. You have
now finished your investigation and have all the information
you need to decide if this franchise is right for you.
It either is or it isn’t, and you’ll know. In
either case, it is time to make a decision and move on. If
this company has everything you wanted, do it. If it doesn’t,
eliminate it and move on until you find the franchise that’s
right for you
Jeff Elgin is the CEO of FranChoice, Inc.,
a consulting network that provides free assistance to help
consumers find great franchises that match their goals. Contact
FranChoice at: www.FranChoice.com |
