Finding a comfortable fit is also important in making a
franchise investment. There's a wide variety of businesses
available; your job is to find one you'll enjoy building and
operating. Yes, it should be a fresh, vital business concept
that's going to be around for a while, and it should have the
promise of profitability, but make sure you enjoy the operations.
My wise youngest brother once told me that a prospective franchisee
should not only understand the business, but also ask about the
job; that is, find out what you will actually do every day to make
the business a success. For example, a training business may appeal
to your inner professor but may require you to make three hours of
cold calls every day to generate clients. When evaluating a
franchise investment, don't let the glamour of the business
blind you to the hard, everyday work at hand.
Franchise purchasers have a significant advantage over business
opportunity purchasers: A bodacious slab of information about the
investment is handed to you on a silver platter in the form of an
offering prospectus, or Uniform Franchise Offering Circular.
Federal law and many state laws require that all franchisors
deliver a UFOC at least a couple of weeks before the buyer pays any
money or signs a binding legal contract. If you are at all serious
about a particular franchise, by all means, ask for a UFOC early in
the process.
A UFOC is designed to deliver a wide range of information about
the franchisor and its franchise offering. You'll learn about
the franchisor's business experience, its litigation
background, financial dimensions of the franchise investment,
detailed contact information about existing franchisees in the
system, and background information on numerous other topics. In an
exhibit to the UFOC, you'll find a copy of the form of
franchise contract and a set of the franchisor's audited
financial statements. Given the investment's advantage of ready
information, it's surprising how many people don't actually
read the UFOC before jumping into the franchise. It's
well-organized and written in plain English, so it's not that
tough to crack. Take the time to read it-it'll put you well
ahead of the game.
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The UFOC answers most of your basic questions and gives you
information to drill down for a more detailed understanding of the
franchise. The UFOC won't tell you everything you need to know,
but it does provide the basics. You take it to the next level by
preparing an accounting projection and a break-even analysis with a
good accountant, considering locations and visiting with current
franchisees. You can also work with an attorney to review the form
of franchise agreement. You want to know from your legal counsel
what rights are granted and what obligations are imposed on the
franchisee, and whether any parts of the contract are unacceptable
or injurious to your interests.
With a full list of franchisee contact information, your job of
contacting franchisees is simplified. Get on the phone, make
appointments, then visit as many as you think are necessary to get
a good cross section of views and experiences with the franchise
program. Ask the franchisees for their views on the franchise
program, the value of the training and support they have received
from the franchisor, the everyday work involved in the business,
and the profitability of their operations. Sure, you can ask them
what their gross sales were last year and what kind of performance
they expect this year. Most franchisees will be candid and open
with you, and freely discuss their experience. Their views are
immensely valuable; they're not trying to sell you on the
program, and they have firsthand experience. Don't expect 100
percent smiles and sunshine about the franchise investment, but if
a majority of franchisees endorse the program and tell you
they're making a profit, that tells you a lot about the value
of the investment.
State authorities in franchise registration states can confirm
over the phone whether a particular franchisor is registered to
offer and sell franchises in that state. They can also tell you if
initial franchise fees must be deferred until you open for business
or if other financial protection is in place for investors in the
state. Any protective arrangement will be noted in Item 5 of the
UFOC and in the state appendix.
Franchises and business opportunities: The DNA may be the same,
but their differences run deep. Put in the time and effort to
research the offerings, and you'll find a program that offers
an exact fit for your needs.
For more information on buying a franchise or business
opportunity, visit Entrepreneur's FranchiseZone.
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