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Researching Essentials

What's the most important factor to consider when selecting a franchise? Our experts speak out.
February 25, 2002
URL: http://www.entrepreneur.com/article/49344

You're going to do it, finally. After years of mulling, you've decided to buy a franchise. But even with that substantial decision out of the way, you've still got a lot of thinking and planning and choosing and questioning to do.

To make this process a little easier, Franchise Zone asked three experts with unique perspectives what they believe is the most important thing a prospective franchisee should know about research.

Andrew A. Caffey, a Washington, DC-area franchise attorney and an internationally recognized specialist in franchise and business opportunity law, discusses a prospective franchisee's ultimate responsibility: "The most important principle of research is this: Selecting and evaluating the right franchise opportunity is an active, not a passive, pursuit. Sure, you receive a Uniform Franchise Offering Circular that's packed with information, but that is not the sum total of the research necessary. Too many investors stop short once they get excited talking to a franchisor and then receive a UFOC.

By active pursuit, I mean actively searching and recognizing your own strengths and weaknesses and resources with your advisors and loved ones; taking the initiative to ask questions, and more questions, of the franchisor and existing franchisees in the system; pulling all pertinent information off the Internet, and lining up attorneys and accountants for the necessary professional review of the proposed business. An aggressive and inquisitive approach will do more to find the right franchise than anything else."

Paul Kramme, a Clive, Iowa, Fastsigns franchisee, recalls his firsthand experience with researching before buying: "Perhaps my most important step was visiting the headquarters to meet the franchise management team, to get a better understanding of training and the system, and generally get a warm and comfortable feeling that my views and those of the franchisor were compatible. Once both parties agree that a good match exists, the prospective owner must accept the fact that he'll be [an] independent business owner, but he bought a franchise for a reason-to take advantage of certain affiliations with a franchise system. The owner must also understand that in any relationship of this nature, there will always be difference of opinion on how things are done."

Robert L. Purvin, Jr., chair of the board of trustees for the American Association of Franchisees & Dealers, speaks about the importance of researching a system's stance on franchisee associations: "Determine whether the franchise system has an independent franchise association that's recognized and respected by the franchisor and that has negotiating leverage to deal with issues and opportunities that arise within the franchise system. Talk to officers of the franchise association and determine the effectiveness of communication within the franchise system.

"Be sure you know the difference between an independent franchisee association and a franchise advisory counsel. Some advisory counsels are very effective; others aren't. Look for a strong dealer's association that works productively with the franchisor to make them effective competitors. In my mind, there is no greater protection of the value of your franchise than having a strong dealer's organization that's supported by the franchise system.

"Often when a franchise system has a strong dealer's association, it also has a negotiated franchise agreement. A negotiated agreement will always be fairer and more balanced than an agreement that is tendered by the franchisor on a 'take it or leave it' basis."