Franchise Buying Guide

Shop, Look & Listen

Digging Deeper
Presented by Guidant Financial
Guidant Financial specializes in helping entrepreneurs purchase new franchises using their retirement funds.

Franchise system intangibles are the third level of evaluation. This is the least objective but, in many ways, the most important measure of a franchise. Intangibles include the culture of the franchise network, the franchisor's leadership style, the role the franchisee association plays in directing the system, the mood of franchisees, the dispute resolution methods, the effectiveness of support and the "success quotient" of franchisors.

Although you won't find this information in the UFOC, you'll find a few hints there. Look at Item 3 (Litigation) for clues about the company's dispute resolution style. Are many lawsuits disclosed? Arbitration proceedings? Have your lawyer look at the dispute resolution provisions of the Franchise Agreement; they'll also tell you something about the franchisor's style.

The system growth statistics in Item 20 may give you clues regarding the company's "success quotient." These figures tell you the number of units that existed at the end of each of the past three fiscal years and the number of franchisees who left the system for any reason.

Unfortunately, these statistics don't tell you why a franchisee left or a unit closed. Attached to Item 20 is a list of current franchisees and the names, addresses and phone numbers of those who left the system in the past year. Contact current owners, as well as some who left. Ask why people left and whether current owners would buy the same franchise again.

Interviewing a few franchisees will give you a sense of their mood as a group. Are they happy? Mixed reviews? Near revolt? This information is important; you don't want to join an unhappy group.

Comparing franchise opportunities takes time, money and a lot of legwork. It also takes a commitment to making a decision that's right for you. You cannot afford to skim the surface, just comparing fees. The deeper levels of comparison will tell you more about the program's business potential and the value of becoming a franchisee.

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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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