Myth vs. Reality

Myth #4:

The UFOC tells you all you need to know about the franchise.

Not so. As useful as the UFOC is, it's only a small portion of the information you need to evaluate before you decide to purchase a particular franchise. You also need practical and professional input.

Call several of the franchise owners listed in Item 20 of the UFOC, and ask them about their experience as franchise owners in the system. What have their greatest challenges and disappointments been? Did they make the amount of money they expected? If they had the investment decision to make again, would they still buy this franchise?

There is no experience as instructive as meeting and observing current franchise owners. Visit the business, and find out if you can follow the owners around for half a day. Ask them questions about what they do and why they like it. You'll get the real story here, not the varnished presentation of a sales representative who earns a commission when you sign on the dotted line.

You should also plan to take your UFOC to both an accountant and an attorney. You'll need a competent accountant to prepare a solid cash-flow analysis of the business. Your accountant can estimate when you'll break even and tell you whether you can afford to invest in the business. Involving an accountant early can help you avoid costly surprises later.

A good business lawyer can explain the legal relationship the proposed franchise agreement will create. Franchise agreements are unusual legal contracts. They can span a generation of time; grant a list of intangible rights, from trademark use to exclusive territory rights; severely limit the decision-making power you would otherwise have as an independent business owner; and have frightening termination language that puts you and your life savings on a trap door with a hair trigger. Talk through the implications of the contract with your attorney. There may well be provisions that you'll be advised not to sign. If so, can you negotiate the terms of the franchise agreement?

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This article was originally published in the October 1998 print edition of Entrepreneur with the headline: Myth vs. Reality.

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