Are You Suited to Be a Franchisee?
Learn how to invest your IRA or 401k into a franchise penalty-free. ($50k min)
Editor's note: This article is excerpted from Franchise Bible from Entrepreneur Press.
Carefully consider these questions before investing in your own franchise.
Checklist Before You Buy a Franchise
1. Have you and your spouse and knowledgeable family members discussed the idea of buying a franchise?
2. Are you in complete agreement?
3. Do you have the financial resources required to buy a franchise? If not, where are you going to get the capital?
4. Are you and your spouse ready to make the necessary sacrifices in the way of money and time in order to operate a franchise?
5. Will the possible loss of company benefits, including retirement plans, be outweighed by the potential monetary and self-pride rewards that would come from owning a franchise?
6. Have you made a thorough written balance sheet of your assets and liabilities, as well as liquid cash resources?
7. Will your savings provide you with a cushion for at least one year after you have paid for the franchise, allowing a one-year period of time to break even?
8. Do you have additional sources of financing, including friends or relatives who might be able to loan you money in the event that your initial financing proves inadequate?
9. Do you realize that most new businesses, including franchises, generally do not break even for at least one year after opening?
10. Will one of you remain employed at your current occupation while the franchise is in its initial, pre-profit stage?
11. Are you and your spouse physically able to handle the emotional and physical strain involved in operating a franchise, caused by long hours and tedious administrative chores?
12. Will your family members, particularly small children, suffer from your absence for several years while you build up your business?
13. Are you prepared to give up some independence of action in exchange for the advantages the franchise offers you?
14. Have you really examined the type of franchise or business you desire and truthfully concluded that you would enjoy running it for several years or until retirement?
15. Have you and your spouse had recent physicals?
16. Is the present state of your health and that of your spouse good?
17. Do you and your spouse enjoy working with others?
18. Do you have the ability and experience to work smoothly and profitability with your franchisor, your employees and your customers?
19. Have you asked your friends and relatives for their candid opinions as to your emotional, mental and physical suitability to running your own businesses?
20. Do you have a capable, willing heir to take over the business if you become disabled?
21. If the franchise is not near your present home, do you realize that it would not be beneficial to sell your home and buy one closer until the new venture is successful?
22. Do you and your spouse have past experience in business that will qualify you for the particular type of franchise you desire?
23. Is it possible for either you or your spouse to become employed in the type of business you seek to buy before any purchase?
24. Have you conducted independent research on the industry you are contemplating entering?
25. If you have made your choice of franchises, have you researched the background and experience of your prospective franchisor?
26. Have you determined whether the product or service you propose to sell has a market in your prospective territory at the prices you will have to charge?
27. What will the market for your product or service be like five years from now?
28. What competition exists in your prospective territory already?
29. From franchise businesses?
30. From non-franchise businesses?
31. Do you know an experienced, business-oriented franchise attorney who can evaluate the franchise contract you are considering?
32. Do you know an experienced, business-minded accountant?
33. Have you prepared a business plan for the franchise of your choice?
Checklist for Interviewing Existing Franchisees
Checklist for Interviewing Existing Franchisees
Use this questionnaire when trying to investigate franchise opportunities by interviewing existing franchisees.
34. Are you satisfied with the franchisor?
35. Is your franchise profitable?
36. Have you made the profit you expected to make?
37. Are your actual costs those stated in the offering circular?
38. Is the product or service you sell of good quality?
39. Is delivery of goods from the franchisor adequate?
40. How long did it take you to break even?
41. Was the training provided to you by the franchisor adequate?
42. What is your assessment of the training provided?
43. Is your franchisor fair and easy to work with?
44. Does your franchisor listen to your concerns?
45. Have you had any disputes with your franchisor? If so, please specify.
46. If you have had any disputes, were you able to settle them?
47. How was your settlement accomplished?
48. Do you know of any trouble the franchisor has had with other franchisees? If so, what was the nature of the problem?
49. Do you know of any trouble the franchisor has had with the government?
50. Do you know of any trouble the franchisor has had with local authorities?
51. Do you know of any trouble the franchisor has had with competitors?
52. Are you satisfied with the marketing and promotional assistance the franchisor has provided?
53. Have the operations manuals provided by the franchisor helped you?
54. What do you think of the manuals?
55. Are the manuals changed frequently? If so, why?
56. Other comments you would like to make.
Checklist of Information to Secure from a Franchisor
Checklist of Information to Secure from a Franchisor
Use this checklist when doing your own investigation and information gathering.
57. Is the franchisor a one-person company?
58. Is the franchisor a corporation with an experienced management that is well trained?
59. Does the franchisor operate a business of the type being franchised?
60. Is the franchisor involved in other business activities?
61. Is the franchisor offering you an exclusive territory for the length of the franchise?
62. Can the franchisor sell a second or third franchise in your market area?
63. Do you have the right of first refusal to adjacent areas?
64. Will the franchisor sublet space to you?
65. Will s/he assist you in finding a location for franchise operation?
66. Must you least fixtures, signs or equipment from the franchise? If so, are the prices reasonable?
67. Does the franchisor provide financing? If so, what are the terms?
68. Does the franchisor require any fees-other than those described in the offering circular-from the franchisee? If so, what are they?
69. Has the franchisor given you information regarding actual, average or forecasted sales?
70. Has the franchisor given you information regarding actual, average or forecasted profits?
71. Has the franchisor given you information regarding actual, average or forecasted earnings?
72. What information have you received?
73. Will the franchisor provide you with the success rates of existing franchisees?
74. Will the franchisor provide you with their names and locations?
75. Are there any restrictions on what items you may sell? If so, what are they?
76. Does your prospective franchisor allow variances in the contracts of some of his/her other franchisees? What is the nature of the variances?
77. In the event you sell your franchise back to your franchisor under the right of first refusal, will you be compensated for the goodwill you have built into the business?
78. Does the franchisor have any federally registered trademarks, service marks, trade names, logotypes and/or symbols?
79. Are you, as a franchisee, entitled to use them without reservation?
80. Are there restrictions, exceptions or conditions? If so, what are they?
81. Does the franchisor have existing patents and copyrights on equipment you will use or items you will sell?
82. Does the franchisor have endorsement agreement with any public figures for advertising purposes? If so, what are the terms?
83. Has the franchisor investigated you carefully enough to assure himself/herself that you can successfully operate the franchise at a profit both to him/her and to you?
84. Has the franchisor complied with FTC and state disclosure laws? Are there any regulations specific to the industry in which your franchise business will operate? (Include any special licenses or legal restriction on operations set by statutes.)
85. Does the franchisor have a reputation for honesty and fair dealing among the local firms holding his/her franchises?
86. How many years has the firm offering you a franchise been in operation?
87. What is a description of the franchise area offered you?
88. What is the total investment the franchisor requires from the franchisee?
89. How does the franchisor use the initial franchise fees?
90. What is the extent of the training the franchisor will provide for you?
91. What are your obligations for purchasing or leasing goods or services from the franchisor or other designated sources?
92. What are your obligations in relation to purchasing or leasing goods or services in accordance with the franchisor's specifications?
93. What are the terms of your agreement regarding termination, modification and renewal conditions of the franchise agreement?
94. Under what circumstances can you terminate the franchise agreement?
95. If you decide to cancel the franchise agreement, what will it cost you?
96. What are the background experience and achievement records of key personnel (their "track records")?
97. How successful is the franchise operation? (Use D&B reports or magazine articles to supplement information the franchisor gives you.)
98. What is the franchisor's experience in relation to past litigation or prior bankruptcies?
99. What is the quality of the financial statements the franchisor provides you?
100. Exactly what can the franchisor do for you that you cannot do for yourself?