Introduction
Buying into a franchise is an exciting and challenging experience. The thought alone of being your own boss may more than make up for the hard work it takes to support your own business. Unfortunately, many new franchisees put themselves at an immediate disadvantage by not taking into account certain aspects of the process. The following addresses certain elements the franchisee must consider in order to become a success.
The disclosure document
The Uniform Franchise Offering Circular (UFOC) is a very long, detailed document, but it is necessary for a franchisee to understand it in totality. It is recommended to take note of areas that seem confusing in order to later seek clarification. An attorney that is experienced with franchising should be a part of the process. Ask them to further elucidate the stipulations set in the document. It is also wise to consult the franchisor; they most definitely will have experience with the literature and will be able to explain complex areas of the document.
Many franchisees begin a negative relationship with the franchisor because the UFOC is not clearly cogitated by the franchisee. Franchisees often misunderstand their role and responsibilities in relation to the whole process. To ensure good relationships and a smooth beginning of the franchise, the franchisee needs to identify what they are not completely clear in understanding, gain clarification, and get all of their responsibilities in writing.
The franchise agreement and other legal documents
The franchisee, along with their attorney, needs to review the franchise agreement, lease or real estate agreements, and any other contracts. The franchisee should outline any concerns that may arise and address them to the franchisor for modification or clarification. Most times the agreements are standardized, so there is not a lot of leeway in making changes, but things can be added.
Verifying oral representations
It is suggested to take detailed notes of all meetings with the franchisor (bringing a tape recorder is also an option) in order for future reference. It is best practice to not leave any issue unresolved. To elude any later disputes, get any oral promises in writing.
Contact other franchisees
Initially, the franchisor may take a new franchisee to see other franchisees’ establishments. It is important for the franchisee to contact other franchisees without being in the presence of the franchisor. There may be important information they can relay to you but is too uncomfortable to state in front of the franchisor. Another idea is to visit other franchisees that are not on the franchisor’s “tour” list. It is most likely a franchisee will get a clearer picture of what the day-to-day vicissitudes are like by visiting another franchisee on their own accord. This is a good opportunity to gain insight into what working for the franchise is really like. In visiting other franchisees, it will be of optimal benefit to keep the following in mind:
Visit franchisees that
- Are in different locations
- Have one franchise
- Have multiple franchises
- Have been in business a long time
- Are still new
- Are successful
- Are not doing well
Considering reasons for failed franchises
It will be a benefit to locate some past franchisees that have closed, sold, or changed ownership and find out the reason why their status changed. If a recurring issue developed, a new franchisee would want to do whatever they can to avoid the same development. It would also be wise to get the franchisor’s version of the story.
Capital
Often, new franchisees underestimate the cost of buying into a franchise. One must consider pre-opening costs, family budgeting, and enough operating cash to make it through the beginning, break-even point. Many new franchisees fail, not because of the potential of the business, but because they did not have enough money to buy them the time for their business to really take off.
Other players
Sales representatives will do a spectacular job in making the franchisee feel confident about their decision. It is good practice for the franchisee to visit the franchise headquarters and meet with other important personnel that are a part of the system. These people will be able to verify the information given by the sales representative. Once you know your territory, you will want to visit with the field representative and direct supervisor. It will be most beneficial for a franchisee to familiarize themselves as much as possible with the organization before signing an agreement with them.
Analyze your market
It is of vital importance for the franchisee to choose a location that will be conducive to success. The main things to look for is the need or desire for your product or service in the area and if there is any competition that can provide the same as your business. If competition does exist, a franchisee will need to evaluate if they will be able to compete with them or modify their approach in some way that will differentiate them from the competition. In finding a completely new area, a franchisee will want to discuss being the only franchise branch in the immediate area for a specified amount of time to ensure success.
