3. Ramp up research. It's easy to learn more about a franchisor and its management team by cruising the internet. For a small fee, you can check an online news database such as LexisNexis for articles written about the company or its managers. You may find past troubles that have been airbrushed out of a manager's resume, or company missteps that a local paper wrote up.
While researching Tutoring Club, Tanner learned through a quick online search that some competing concepts had higher startup costs and required bigger store sites. Her total opening costs were about $100,000.
A word of caution: Be sure to take what you find online with a grain of salt and verify what you learn because many sites, blogs and chat forums have no editors.
Also, business research companies may be helpful in vetting a franchisor. Tanner obtained a positive report on her franchisor from respected research firm D&B before moving forward.
Other good sources for a company reputation check include local Better Business Bureaus and state attorneys general, particularly in the 14 U.S. states that regulate franchising (California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington and Wisconsin).
4. Meet the management. Most prospects don't ask enough hard questions of franchisor managers, says Joe Mathews, co-author of Street Smart Franchising. Prospects should walk away from headquarters with a clear sense of just what the company will do for franchisees--and what it won't.
"Ask, 'Who's going to be supporting me?'" Mathews says. "How long have they been here? Will it be a highly skilled business consultant...
or a 23-year-old kid who doesn't know anything?"
To find out how straight management is being with you, franchise consultant Hannibal Myers, owner and president of Atlanta-based H3 Consulting LLC, recommends this litmus test: Ask if they'd be willing to let you out of your franchise contract if you're unhappy. "If they say, 'Oh, sure, that's no problem. We want everybody to be happy here,' they're lying," he says. "They'll tell you anything to get you to sign." Myers looks instead for franchisors that offer extra help to franchisees in trouble, and sales assistance if a franchisee wants out.
Taco Del Mar franchisee Fred Vosloh took an unusual step in getting to know management at the company: Vosloh, 40, first took a job with the Seattle fast-casual, fresh-Mex food chain.
Working at Taco Del Mar headquarters in franchise sales gave Vosloh an up-close look at how the 230-store chain operates. He also got to talk to hundreds of franchisees in other fast-food chains as the company trolled for new prospects, giving him a sense of how Taco Del Mar stacked up against the competition.
Vosloh liked what he saw and purchased a large Taco Del Mar territory in the Gulf Coast with business partner Scott Redlich. They opened their first store in Mississippi in September 2006.
5. Know the market. Most prospective franchisees don't do enough market research to understand how the franchise they're considering fits into the competitive picture, says Siebert. It's essential to learn about current players in the sector, their expansion plans and how many new competitors might be circling.
"Most franchisees aren't thinking about how the market is going to change," Siebert says.
Market research steered Dave Demers of Atlanta to a Five Guys Famous Burgers and Fries franchise. Demers, 48, considered and then rejected the idea of a pizza chain, concluding his market was oversaturated. Less crowded, however, was the upscale-burger niche. After examining several burger entrants, Demers concluded that Five Guys--a perennial Washington, DC, best-burger winner with more than 100 stores--was an affordable ground-floor opportunity in the sector.
Demers' research indicated that burgers would have better repeat-customer patterns than pizza in his market, too. He opened the first Atlanta-market store in the fashionable Buckhead neighborhood last September. Says Demers, "I believe this will have staying power."
6. Get advice. Many franchisees cut their research time by using a broker or consultant who has already researched many franchises. But be aware that few consultants work with every franchise out there. Lee says he worked with several brokers, including Gordon Dupries in San Rafael, California, to get exposure to a broader range of franchise options.
Tanner, on the other hand, ran her franchisor's financials by an SBA accountant, who gave them the thumbs up.
"Hire a good advisor; go to SCORE; find someone with a big-picture view," Siebert advises.
There's no substitute for having an accountant review your franchisor's financial projections, or having an experienced franchise attorney look over the UFOC and franchise agreement. Siebert says spending money on such expertise is well worth it.
"Most franchisees don't know a liquidated-damage clause from a hole in the ground," he says. "They can't make an informed decision. They should hire an attorney to tear the UFOC to shreds."
7. Beat the tom-toms. Many people interact with a franchisor other than the franchisees. These include vendors, corporate store managers, competitors, local media and, of course, customers. All may prove to be good information sources.
Many are easy to find, too. For instance, you can interview customers in stores or read their often-unvarnished opinions online at www.epinions.com and other customer-feedback sites. Talking to an enthusiastic Tutoring Club customer clinched Tanner's decision.
Demers talked to Five Guys' vendors to find out how the company treated suppliers. "I learned they have a very good reputation," he says.
There's no question that doing this much due diligence is a major time investment. Before choosing Express Personnel, Lee worked at researching franchisors full time for weeks. But he says the payoff--knowing he'd gotten a complete picture of his franchisor--was definitely worth all the hard work.
"I had a lot of people tell me I was doing an unusually rigorous evaluation," he says. "But what would you expect? I'm putting my life savings on the line."
The author is an Entrepreneur contributor. The opinions expressed are those of the writer.