Let's Get It Started

Part 4: Basic Franchise Company Research

The process of looking into any franchise opportunity is primarily one of mutual elimination. Just as you don't want to waste your time on a franchise that isn't going to work for you, franchisors don't want you to waste their time, either. Consequently, while you're asking them for information, they're going to be asking you for more information about yourself. The following steps are typical of this back-and-forth process.

Step 26: You submit the initial request for information to the franchisor, most often online. At this point, most franchisors will use some form of automated response to try and determine if you're really interested--and even qualified. About 95 percent of internet inquiries received by franchisors aren't qualified, so franchisors typically create an additional screening process, usually in the form of an auto-reply e-mail. To move through this stage more quickly, type one or more questions into the comments section of the inquiry form (for example, ask if your desired territory is available), since spam never includes additional questions.

Step 27: Once your validity has been confirmed, the franchise company should provide you with a fairly broad overview of information about the opportunity, along with a request that you fill out a questionnaire. The information you receive may be in the form of brochures, videos or additional web-delivered information. Most franchisors' questionnaires are basically the same and consists of 1) your contact information, 2) your professional experience, 3) your financial qualification information, and 4) questions about why you want to become a franchisee and what you hope to accomplish by doing so.

Step 28: After the franchise company receives your questionnaire, it'll evaluate your answers and decide if there's a possibility for you to do business together. If there is, the company usually ramps up to a fairly intense process of communication designed to provide both parties with all the information they need to make an informed decision about whether or not to work together.

Step 29: As you go through this process with each franchise company, you should be constantly evaluating the relationship as well as the actual information you are receiving. This process is much like courtship and will provide you with many clues as to how the "marriage" is going to work, if things get to that point. If you find the company to be very responsive and helpful, that's great. If, however, you find it to be unresponsive or uncooperative, get away, unless you want to end up spending years being treated in such a manner.

Step 30: At some point, the company will provide you with its official, FTC-mandated Franchise Disclosure Document. This contains a great deal of information about the history of the company and its key employees, any litigation or failure history for the chain, costs associ-ated with the franchise, training available for franchisees, a list of existing franchisees and perhaps even earnings information about existing units in the system (although this isn't required). You should read this entire document carefully, and make sure all the questions you have about it are answered in full.

Step 31: Assuming you've gotten this far with a company and are still interested, the next step is to call existing franchisees. You want to find out how they feel about the com-pany and the business. How are they doing financially? What's their day-to-day routine like, and what skills have they needed to succeed? What are the biggest pluses and minuses of being a franchisee of this company? What challenges have they had to overcome that they weren't expecting? Knowing what they know now, would they still do this? You should also tell them what you want to accomplish by owning a franchise and ask whether they think you can do so with this opportunity.

Step 32: Carefully analyze any required marketing program--what it is, what it costs, and most important, what the franchisees currently paying for it think of it. This is one of the biggest sources of value (or conflict, depending on the system) in franchising, so dig in to it until you have the answers.

Step 33: Confirm that the existing franchisees feel that the franchise company adequately protects them from internal competition. Some franchise systems place too many units too close together, and franchisees' businesses may be cannibalized. Encroachment may not be an issue, but make sure you check.

Step 34: If you expect to get financing for part of your franchise operation (which is fairly typical), ask the franchise company what plans or programs it has in place to help you do so. You should also ask existing franchisees how they obtained financing so you can get a good feel for whether this will be a challenge for you.

Step 35: Develop a strong sense of how well the franchisee training programs prepare you to operate the business. The most important existing franchisees to visit are those who have just started up in the past year or so, since their information and opinions are more likely to be relevant to your situation.

Step 36: Most of the companies you look into will be eliminated either prior to or at the point of contacting existing franchisees. That's good. But if you're still interested in an opportunity after Step 31, you might just have a winner on your hands. At this point, you may want to take some time to look more closely at the other companies in this industry segment. Go to each of their websites and see if one or more manage to catch your attention. If you want to learn more and compare them to the representative company you've been researching, start at Step 26 with each.

Step 37: After making a few calls to existing franchisees, you need to compile a list of questions for the franchisor based on the franchisees' feedback. You should be especially aware of any franchisee comments that seem to contradict the information you're getting from the franchise company and make sure to clear them up.

Step 38: After asking the franchisor to answer all the questions on your list and explain anything that isn't clear, make more calls to other existing franchisees to verify the answers you received.

Jeff Elgin has almost 20 years of experience franchising, both as a franchisee and a senior franchise company executive. He's currently the CEO of FranChoice Inc., a company that provides free consulting to consumers looking for a franchise that best meets their needs.

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This article was originally published in the May 2008 print edition of Entrepreneur's StartUps with the headline: Let's Get It Started.

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