Franchise Buying Guide

Shop, Look & Listen

Facts and Figures
Presented by Guidant Financial
Guidant Financial specializes in helping entrepreneurs purchase new franchises using their retirement funds.

Direct measurables include the initial franchise fee, continuing royalty rates and other fees (see Items 5 and 6 of the UFOC) and the estimated total investment (see Item 7). You should also note any territorial protection (see Item 12) and the terms of the Franchise Agreement.

Draw up a chart with this measurable information and place the numbers side by side. What do they tell you? Obviously, they'll give you a surface comparison only--measurable figures don't offer much depth or insight--but a surface comparison can be useful in making a first cut.

If the total investment of a franchise is beyond your budget, drop that company out of the running. If the initial fee of one company seems out of line with the others, find out why. It may be that the owner's training is more extensive or that an initial inventory is included in that company's initial franchise fee.

The continuing royalty rate is a key number in your selection of a franchise. How do the rates compare? Most franchises assess a rate between 3 percent and 7 percent of the franchisee's gross sales. If one company's royalty rate is higher than another, check to see if the rates cover the same services. For instance, some franchise systems fund systemwide advertising programs from a portion of all royalties collected from franchisees. Other franchises assess a separate advertising fund contribution.

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This article was originally published in the May 1998 print edition of Entrepreneur with the headline: Shop, Look & Listen.

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