Research A Franchise

Check 'Em Out

You've been wowed by the sales presentation; you've sampled the free popcorn at the trade show; you've asked numerous questions and narrowed your list down to a few tasty choices. Now you want to thoroughly check out the company to make sure it's legitimate--to see whether it actually does what it claims to do for its franchisees.

The first and most important step at this stage is contacting as many franchisees as possible and asking them about their business experience with the company. Where do you get a list of franchisees? From the franchisor, of course. Ask for a complete list as opposed to the jotted names of a select few. Get a list with at least 100 franchisees on it, assuming the system has that many. If the company is able to provide a copy of its current Franchise Disclosure Document (or FDD), all the better. Item 20 of the FDD contains just the list you need.

When you contact existing franchisees, be aware that they're busy business owners on tight schedules (just as you hope to be if you pull this off). If the business is a restaurant, for instance, don't drop in at 12:30 p.m. and expect to receive much attention. Call in advance, make an appointment at a convenient time for the owner and keep the meeting brief. Ask whether the business investment has been a good one for the owner. Has the business's performance met his or her expectations? Has the franchisor lived up to its end of the bargain? Was the training useful and complete? Are franchise owners generally happy in the system or is there audible grumbling? What were last year's gross sales, and are this year's sales progressing at the same pace? Finally, given what the franchisee knows, would he or she make the same investment if he or she had to do it all over again?

You can also check out the franchisor by contacting public sources: your state's consumer protection agencies, the Better Business Bureau, Internet sources (look at www.franchise.org and the Federal Trade Commission's site, www.ftc.gov). If you live in one of the 14 states that regulate franchise sales, you can contact the appropriate agency and ask whether the company is registered and whether there are any complaints, problems or lawsuits that the agency can tell you about.

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