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Franchise Buying Guide

Evaluating New Franchises

Proceed with even more caution.
Presented by Guidant Financial
Guidant Financial specializes in helping entrepreneurs purchase new franchises using their retirement funds.

Q: I'm currently reviewing a franchise opportunity from a restaurant that's been in business for more than two years but just started franchising. I would be the first franchisee, and I have no restaurant or franchise experience. What should I be looking for?

A: While it's exciting to be a pioneer, keep in mind there are risks involved. You might reap fantastic rewards for those risks-or you might not survive the journey. So be careful. Any good franchise opportunity must offer the following three core elements of value to a prospective franchisee:

A valuable brand. A franchise system should offer a brand that's valued by consumers. One symbol that customers interpret as high quality is having predictable products and services that can be found in any unit operating under the brand.

A proven business system. A franchise system should have an established business format that allows new franchisees to learn how to produce predictable and successful results.

Strong franchisee support. This includes not only the initial support and training, but also ongoing support to help franchisees deal with problems as they arise.

The challenge with any new franchise opportunity is that, by definition, its results will not be predictable. It has no significant track record of turning people who are not experienced in the business into successful operators. It might work out fine, but you have no way of knowing in advance.

In your specific example, you're looking at people who have proved (we'll assume) their ability to operate a restaurant successfully for at least two years. This is a very valuable skill, but it doesn't mean they have the ability to replicate these results through other people who don't have any restaurant experience. When you look at the many skills that are represented by executives in other restaurant franchises, you'll get an idea of the challenges this new company will face with new franchisees.

For starters, the restaurant management will need expertise in real estate location and negotiation, unit construction (including dealing with all the codes and other matters in varied jurisdictions), equipment sourcing and financing, and a multitude of employee issues. You would be hard-pressed to find a more difficult industry for a franchisor to start in.

Your spirit is admirable, but discretion is the better part of valor. You should broaden your search to at least look into other franchises so you can do a comparison of the services and support available. This will help ensure that you don't end up as one of the pioneers that didn't make it to the end of the trail.

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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