Franchise Buying Guide

True Confessions

Mixed Bag
Presented by Guidant Financial
Guidant Financial specializes in helping entrepreneurs purchase new franchises using their retirement funds.

Gregorio is both a happy and an unhappy franchisee. He's not indecisive--he just has two franchises in the same Evansville, Indiana, mall, providing two very different experiences. One glaring dissimilarity: communication. Calls to his coffee franchise president and marketing director are returned promptly, while the franchisor of his custom embroidery hat business rarely, if ever, returns his calls. Since Gregorio only spoke to one hat franchisee before buying, he made sure not to repeat that mistake when researching the coffee franchise. "I asked the franchisees, 'Do you get the support that they claim?'"

Seid: Find out if the field staff visits you and what they do when they visit. What's the field-staff turnover rate, and can they make decisions? Also, does the franchisor set up a regional meeting of franchisees in the area? If they do, you've got a great franchise.

The hat franchise offered a week-long training course that taught Gregorio how to run the machines and computer, but not how to restock and order. Before buying the coffee franchise, he worked at a store for one day, then had additional classroom training; after buying, he and a store manager received two weeks of training and were offered an additional week. "You and your managers must be comfortable learning how to run your store," says Gregorio.

Seid: Length of training does matter. But for some franchises, quite frankly, three days is too long. It depends how complex the franchise is. It's not so much a matter of time; it's a matter of the curriculum. How much classroom time are you getting? Do you have role playing? How do you train your staff later? And do they have tools for you to do that?

When Gregorio became involved with the hat franchise, it was a relatively new operation. Based on his experience with them vs. his experience with the coffee franchise, which has been franchising since the 1980s, he definitely recommends choosing an established franchise. "When you buy into a new franchise, you're paying for a name nobody's ever heard. They've still got kinks to work out."

Seid: [Newer operations] don't have the same resources or experience. Gregorio's not wrong, but that [new] franchisor is probably going to work harder than the older guy does because of those issues.

The Big Picture

If you take one thing away from all these experiences, let it be this: There are great franchisors and, inevitably, bad ones. Zarco recommends having an experienced franchise counselor review the franchise agreement and the UFOC, and getting "a complete and precise understanding of the respective rights and obligations of the parties." While too many prospective franchisees don't bother with legal counsel, Zarco estimates 70 percent of his clients could have avoided lawsuits had they sought counsel from the beginning. "Don't be pennywise and dollar-foolish," says Zarco. Apply that adage to the time and money you invest before buying a franchise, and happy days are sure to come.

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This article was originally published in the June 2005 print edition of Entrepreneur with the headline: True Confessions.

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