Franchise Buying Guide

The Insider

Expertise Counts - Pros can magnify your success.
Presented by Guidant Financial
Guidant Financial specializes in helping entrepreneurs purchase new franchises using their retirement funds.

A small cadre of professionals has worked in this industry for decades. These franchise executives move freely from concept to concept and know the gossip, the players and the small dramas that take place in franchise systems nationwide. The insight you can garner from this group will help you to scrutinize the content of the splashy ads you find in the trade journals.

If you've already contacted a banker, it's also a good idea to find a commercial real estate broker, a franchise attorney and an accountant. The broker won't cost you a thing, and the other pros will probably grant you free initial consultations. One way to find these experts is to attend the quarterly meetings sponsored by the International Franchise Association in major cities across the country. You can circulate and meet these people during the networking portion of the meetings. I assure you those contacts you make there will be invaluable.

Don't Fight the Odds
The UFOC doesn't lie.

Entrepreneurs are generally an optimistic bunch, and one of the easiest mistakes to make as a prospective franchisee is believing your hard work, sales ability and cost-cutting ways will propel you to greatness, notwithstanding the known averages of a business concept. It can all start when you review Item 7 of the Uniform Franchise Offering Circular, which deals with the franchise's estimated initial costs. After looking at those costs, it's human nature to assume you'll spend less and perform better than the averages. This assumption, of course, is based on ignorance and enthusiasm, which are potent indeed.

Such fallacious assumptions also propel eager franchise shoppers to assume they can exceed the average gross revenue experience of the chain. Remember, those averages are accomplished by people who are just as motivated and talented as you.

Another mistake: projecting too far into the future. I've seen people purchase huge protected territories and get stuck with multiunit development schedules, only to decide later the businesses aren't to their liking. Because prepaid territorial fees are often not refundable, these folks eat the costs.

Inquire Within
Ask your peers.

Although the UFOC offers a range of information, you should consider it only a starting point. The best analysis is to determine which existing franchisees are involved in situations that most closely resemble your market.

For example, even if the chain's sales averages are high, you may learn that stores in the Midwest are underperforming or maybe that stores with drive-thru windows are pulling the averages up. Put a coffee shop on the wrong side of the road, and you'll suffer the consequences.

Your team of experts can help. Also, take time to speak with existing franchisees to learn the story that the slick franchisor brochure doesn't reveal. While you're doing your investigation, you should also search for existing franchise stores for sale. As with any other property, you can find great deals from people who want to move on.

The right opportunities are out there. Follow my advice; benefit from your own foresight. If one deal isn't perfect, look for another. With more than 2,000 franchises to choose from, you won't regret being diligent.


Todd D. Maddocks is Entrepreneur's "Franchise Focus" columnist.

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This article was originally published in the June 2001 print edition of Entrepreneur with the headline: The Insider.

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