Don't Waste Your Time
Learn how to invest your IRA or 401k into a franchise penalty-free. ($50k min)
Q: I'm in the process of trying to find a franchise to buy, and I've found I'll spend quite a bit of time looking at a franchise, only to discover a huge deal-killing point at the end. What are some quick tests I can apply to identify a good franchise opportunity without wasting too much time?
A: I'm assuming you've spent some time figuring out the characteristics you want in a franchise business. This is the most important first step since you won't have any way to know when you've arrived if you don't know where you're going. You can weed out franchises without those characteristics and avoid conducting thorough investigations of those.
Once you've done that, there are a few other key tests you can use to make sure you're looking at a franchise that might be a good match for you. These key factors assume you've received a UFOC from the franchise and include:
Investment requirements. Examine the amount of net worth and liquidity that's required by the franchise. There's no sense in spending lots of time investigating a franchise you can't afford.
Territory limitations. Ask the franchisor if there are viable territory options available within the area where you're interested in locating a business. If not, move on.
Litigation. Item 3 in the UFOC requires the franchisor to disclose all relevant litigation history. Reviewing and questioning the information in this section can help you quickly form an opinion about the relationship values of the franchisor.
Failure rates. Item 20 in the UFOC requires the franchisor to disclose all relevant data concerning unit failures or transfers during the most recent three years. If the track record doesn't look strong enough to you, there's no reason to proceed.
Required skill sets. If you get past the factors listed above, ask the franchisor to give you a list of the characteristics and skills they consider essential for franchisees to be successful in their system. If these don't match your skills or if they're inconsistent with your own goals for your business, head for the door.
If you get past these items and you still like what you see, the next step is not quick, but it's very important. Get on the phone and call a number of the company's existing franchisees. Spend the time it takes to get a sense of the system from their perspective. As trite as it sounds, if you find an overwhelming consistency in their input-particularly from those franchisees with whom you most readily identify-it's a great indicator of how you would end up feeling if you were to become a franchisee in this system.
For reprints and licensing questions, click here.