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Stick to the Path

Get your trip down franchise-buying lane off on the right foot with a little how-to help.
January 1, 2003
URL: http://www.entrepreneur.com/article/58114

Digging into the franchise mine for that perfect nugget of a franchise program presents a serious challenge: not finding willing sellers, but rather, being swamped by the number of programs from which to choose.

The best defense you have against the franchise-selling onslaught is to have a sharp idea of what will bring you happiness and what you can afford. This requires some planning before you jump into the marketplace. Jot down your real interests in business ownership. Do you want to own a business that serves the general public? Or would you prefer to cater to business customers? Are you nuts about specialty foods? Do you need part-time work or high levels of flexibility? Do you want to get family members involved? The planning questions are endless. The point is to think out your personal business goals. As any navigator will tell you, if you don't know where you're going, you won't know when you've arrived.

The sources of information on franchises are plentiful. One of the easiest ways to get a feel for the marketplace is to attend a franchise and business opportunity trade show. A handful of organizations run trade shows in major cities throughout the year.

When you get to the show, spend a few minutes going over the exhibitors listed in the show brochure. Identify companies you recognize and especially those that fit into your planning profile. Work your way through the aisles systematically, stopping by every booth you've noted in your brochure. Dress for casual business. Leave your personal business cards with companies that interest you, and plan to follow up for more information.

The Internet is an indefatigable source of franchise information. The hype-to-fact ratio is high, but you can gather a lot of basic information. Check out Entrepreneur's FranchiseZone for comprehensive sector coverage. Magazines and books also offer good material, including my new book, Franchises & Business Opportunities. And don't hesitate to contact a franchisor directly for program information.

Once you've identified a few franchise offerings that intrigue you, it's time to dig deeper. You probably have a collection of promotional information, and that's fine as far as it goes, but as a franchise investor, you have a great advantage over people buying an independent business: the Uniform Franchise Offering Circular. The UFOC is an offering prospectus prepared by every franchisor, required by law to be delivered to a prospective franchisee at least a couple weeks before the contract is signed or you invest money in the franchise.

Mining the UFOC

What a gold mine of information! A UFOC contains a sample copy of the franchise agreement, a set of financial statements to tell you about the financial health of the franchisor, and a running description (in plain English, no less) of the key aspects of the franchise investment:

Read this important document. Get franchisor representatives to answer all your questions, and leave no stone unturned. Take the UFOC to your accountant and a good attorney, so you know exactly what you're getting into.

The single most important step in your franchise evaluation is to talk to current franchisees. Use the contact list in the UFOC, get in your car and visit their businesses. Find a convenient time to talk to the owners and find out what they like and don't like about being a franchisee.

How Uncle Sam Protects You
As a franchise buyer, you need Uncle Sam. Here's how the government helps to protect you from illegitimate franchises:

Before You Sign on the Dotted Line

Once the franchisor has thoroughly checked out the applicant's qualifications, and the applicant has reviewed all the documents, seen an accountant and attorney, scraped together the money required to buy the franchise, and completed all the necessary discussions, it is time to close on the transaction.

Purchasing the franchise rights for a business that has not yet been built is not a complicated transaction, and the closing involves nothing more than signing a few contracts and sliding a check across the table for the initial franchise fee. Most "closings" for franchise sales do not take place in a room face-to-face with the franchisor. They take place through the mail. The company sends you a final package with tabs showing where your signature is needed and a cover letter starting the amount of the initial franchise fee. You sign and return, and it's done.

However, you should pay attention to the following before you sign on the dotted line:

Excerpted from Franchise & Business Opportunities: How to Find, Buy and Operate a Successful Business by Andrew A. Caffey

Now That You're an Owner...

You sign the franchise agreement and celebrate taking such a giant step in your business career. Then what? What can you expect of the franchisor and the business development process? Though there are too many variables to pinpoint a "typical" process, expect some common steps in your franchise's development.

A well-organized franchisor will have every step in the development of your new business mapped out in detail. You'll probably be assigned a lead person to help you push through the stages necessary to open on time.


Andrew A. Caffey is a franchise attorney in the Washington, DC, area and a former general counsel for the International Franchise Association. He is also the author of Franchises and Business Opportunities.