While investigating a franchise, keep in mind these indications that the franchise may be right for you:
- You have investigated the type of business and find you have a sustained, compelling interest in it. You take a temporary position in the same type of company and love it.
- When you interview existing owners, they tell you that the help of the franchisor has been instrumental to their success.
- You get mixed reports from franchise owners because they all have different reactions, experiences and feelings about their franchise ownership. (Worry if you get the same rosy story from everyone.)
- The franchisor is on solid financial footing, and the Item 20 statistics in the UFOC show ownership stability.
- You find there is a low level of competition in your market area but that you will not be the first one in the market with this business. Being a pioneer presents a relatively high risk.
- Your accountant tells you that the projections indicate you will be able to afford the purchase and have sufficient capital to weather the start-up phase of the business.
Here are some indications that the franchise may not be right for you:
- You find that the franchisor has a lengthy history of suing franchisees, Item 20 indicates a high level of franchisee turnover, and existing owners tell you there is trouble in the system.
- The trademark is not federally registered because the franchisor filed with its home state and thinks that is sufficient.
- The franchise fees, especially the monthly royalty, are too high for you to make money at the business. Also, your accountant's projections do not paint a pretty picture.
- The franchisor's financial statements show a minimal net worth, and other financial indications suggest it is on a downward slide.
- Item 19 (Earnings Claims) of the UFOC is blank, and franchisees tell you it's because no one has figured out how to make money at this business yet.
- The franchise concept is largely untried in the marketplace, and you can't afford to put your life savings at serious risk.
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