Evaluate a Franchisor's Services
Question: I've just spent a day with a franchise company I'm interested in, speaking with representatives from several departments. Each person told me how much support I would receive from them if I were to become a franchisee and how they would help me operate my business. It all sounded pretty good, but I'm wondering how I can verify that they'll actually do what they promise.
Answer: Franchisors want to put their best foot forward when talking with a prospective franchisee. They know you're evaluating them as much as they're evaluating you, so you're wise to investigate.
There are several ways to do that:
- Check Item 11-Franchisor's Obligations-of the Uniform Franchise Offering Circular. This item lists the support the franchisor is contractually promising to provide to franchisees. Keep in mind that what's listed in the UFOC is the minimum amount of support they promise to provide.
For example, if the UFOC states you'll receive new advertising materials for local advertising annually, but the franchise's advertising representative told you they're sending new materials twice a year or even quarterly, there may not be a disconnect. They may just be doing more than they promised. Still, you should dig a little deeper in your research to be certain.
Also verify that the services you heard about in meetings, particularly the services you considered most important, are included as franchisor obligations in the franchise agreement. Determine whether the level of support during your start-up phase-including site development and training for you, your management team and staff-is adequate.
- Ask about the credentials of the support staff. Are they professionals with experience in their field (i.e., advertising) and in the franchisor's industry? How long have they been with the franchisor? What is the franchisor's turnover on support staff? How does the franchisor train support staff? Franchisors with experienced professionals on staff are probably committed to supporting their franchisees.
A great deal of your regular support will come from the franchisor's field staff, so make it a point to meet the field person assigned to your area. Does your field person have experience in operating and managing the business, and in multiunit operations? What level of authority does he or she have? How often will the field person visit you, and how does he or she help franchisees during those visits? How many franchised locations is he or she responsible for? Ask other franchisees in the area about the field person's level of commitment and the usefulness of his or her advice.
If you're dealing with a new, or small, franchisor, you may find that field support comes straight from the headquarters' staff. That's often an advantage as it means more direct contact with senior managers. But if headquarters' staff members are being asked to do too many tasks, they may not have time to do anything really well.
- If possible, visit several of the franchised locations and see how they're run. Common problems may signal a larger issue. For example, lack of interior signage or poor merchandising may indicate the marketing department isn't providing adequate support. Dirty stores or restaurants may indicate a lazy or overloaded field staff. Poor customer service may be the result of poor training.
If the franchisor allows it, work in one of its locations for a few weeks to take a "test drive" of the system. There's no better way to understand whether the franchisor's services meet the franchisees' needs than observing the system from the inside.
- Ask current and former franchisees whether the franchisor has provided the level of support promised. Be specific and go through each area in which you expect support-training, marketing, advertising, new product development, operations, etc. Ask about the quality of support-are the field staff's solutions practical and affordable? Is the support staff accessible and responsive in the event of unexpected problems? How quickly does headquarters come up with solutions to those problems?
- Ask other franchisees about their results. How effective was the last advertising campaign in raising sales? How effective and efficient is the training program for the franchisees' staff? Does the franchisor have an active R&D program that keeps its consumer offerings fresh and competitive? If the franchisor provides franchisees with products, do they provide quality merchandise and supplies? Are the prices they charge the franchisees fair, and do they have a solid history of keeping key items in stock?
Try to determine where the franchisor is putting its emphasis and resources. While you may consider it exciting to join a system that's expanding rapidly, you have to focus on whether the franchisor is investing in the day-to-day support of franchisees.
Don't rely on a franchisor's outside sales broker or even an inside salesperson as your only source of information about the franchise's services. Get your answers directly from the people providing the support you're counting on.
By doing your homework, you can access not only the quantity, but also the quality of support you'll receive from the franchisor. Ask any questions you have before you sign the franchise agreement.
Michael H. Seid, founder and managing director of franchise advisory firm Michael H. Seid & Associates, has more than 20 years' experience as a senior operations and financial executive and a consultant for franchise, retail, restaurant and service companies. He is co-author of the bookFranchising for Dummiesand a former member of the International Franchise Association's Board of Directors and Executive Committee.
Kay Marie Ainsley, managing director of Michael H. Seid & Associates, consults with companies on the appropriateness of franchising; assists franchisors with systems, manuals and training programs; and is a frequent speaker and author of numerous articles on franchising.