Start with the quality of your search. Attending a franchise
trade show is a great way to get your feet wet. Held in large
cities nationwide, these shows allow you to meet dozens of
franchise representatives, all eager to convince you that their
programs are tailor-made for you.
Go with an open mind, but before you go, spend a few minutes
writing down what would best meet your financial expectations and
investment level. Know how much you have to spend on a franchise
business and what type of business would excite your interests. Are
you good at selling and do you want to deal with the public? Or do
you see yourself involved with other businesses? Getting your
thoughts straight before you arrive on the trade show floor will
save you time and aggravation. If you're looking for a
lower-level investment, you don't want to spend your valuable
time talking to restaurant franchisors about $500,000 investments.
Also, jot down a few qualifying questions so they're at the top
of your mind when you approach a booth: "Can you tell me the
total investment range for your program?" "What are your
initial fees?" "Are there other franchisees in my
town?" "How long have you been in this
business?"
You should come back from a franchise trade show with basic
information about a sampling of qualified programs. Follow up by
writing a letter or e-mail requesting more information from the
ones that interest you.
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The internet provides a flood of information about franchising,
and you should put it to work for you. The ratio of hype to fact is
rather high, but there is no better way to shop for ideas and to
get a sense of the programs available in the market. New,
sophisticated tools that will help you search are showing up on the
net. For instance, for a modest price, www.fransurvey.com
provides a collected survey of franchisee opinions about their own
experiences in a growing number of franchise systems.
Federal and state enforcement agencies are also helpful research
sources. The FTC
regulates franchise sales nationally and has a useful website that
gives you a sense of the actions recently taken against franchisors
that have not been playing by the rules.
If you live in one of the 14 states that also regulates
franchise sales, you should check with the regulating agency to
make sure a franchisor is registered in your state to actually
offer and sell you a franchise. The registration states are:
California, Hawaii, Illinois, Indiana, Maryland, Michigan,
Minnesota, New York, North Dakota, Rhode Island, South Dakota,
Virginia, Washington and Wisconsin. Contact the state attorney
general or securities commissioner, and inquire about franchise
registration information. If you are not in one of these states,
contact your state consumer protection officials about franchise
investments-you might be able to learn whether there are any
current problems with a particular franchisor. The Better Business Bureau is
also a reliable source of documented complaints lodged against
franchise businesses.
The two prime areas of research on your list are the franchisor
itself and existing franchisees in the system. Franchisors are
required by law to provide an invaluable document to prospective
franchisees, and you should look for a copy from a franchisor if
you are serious about its offering. This document, called the
Uniform Franchise Offering Circular (UFOC), must be delivered to a
prospective franchisee at least 10 business days before a contract
is signed or money is paid, or at the first personal meeting to
discuss the sale of the franchise, whichever comes first. That
means the company is not required to deliver a document to everyone
who applies, just to those who have a face-to-face meeting or
actually commit to buying a franchise. The franchisor may choose to
give you a copy at any time, so by all means request one.
The UFOC serves essential information to you on a platter;
it's research in its simplest form. You can read all about the
company, summaries of the fees to be paid to the franchisor and
your total investment (see Item 7), required purchases, territory
and trademark rights, earnings claims, and system statistics.
Attached as exhibits are lists of current franchisees and recently
departed franchisees, the form of franchise agreement you will be
asked to sign, and up to three years of the franchisor's
audited financial statements. Be sure to read this vital document
before you put your money on the line. Take the financials to a
qualified accountant and the franchise agreement to an attorney for
evaluation, and you'll have the right experts on your side.
Your final stop on your research quest is to talk to franchisees
and interview as many existing franchisees as you can.
Originally published in the February 2005 issue of Entrepreneur's StartUps
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