So Many Choices

Picking the right franchise takes a lot of legwork. Luckily, we have 18 tools and techniques to make your due diligence doable.

Devlin Smith

Magazine Contributor

August 1, 2002 7 min read

This story appears in the August 2002 issue of Entrepreneur. Subscribe »

Pick It Out
Think it through when choosing your franchise.

Franchising includes dozens of industries, and dozens of companies offering franchises within those industries. How do you choose between two or three seemingly identical franchises to find the right fit for you?

"Understand it's not always about who's the largest franchisor in that industry. The right choice has more to do with the relationship match," says Terry Powell, CEO and founder of The Entrepreneur's Source, a franchise matchmaking company in Southbury, Connecticut.

This match, says Powell, involves harmonizing your expectations of training, support and goals not only with those of the top people in the franchise organization, but also with the lower-level people you'll interact with on a regular basis if you join the system.

The people factor was an important consideration for Mark Strayer, a Mission Viejo, California, Maid Brigade franchisee. Strayer, 45, thoroughly investigated three residential cleaning franchises before selecting Maid Brigade. "I went through every single person in their organization. By meeting with the different people I'd be working with, I was well-attuned to what goes on behind the curtain," he says.

Strayer also spoke with existing franchisees in each different system about their personal experiences, expectations and successes. In the end, territory was the deal-breaker for Strayer, who wanted to open a franchise in Southern California.

Even after conducting thorough research of all possible franchises, feeling buyer's remorse about your final choice is normal. Powell warns all new franchisees not to give in to doubt too quickly after signing on with a franchise system. "Very rarely does the business itself determine whether or not you'll succeed," he says. "Give yourself at least a year to build the right foundation."

--D.S.

18 Things You Need to Know Before You Buy
5 Questions answered by franchisees who've been there
8 Mistakes first-time buyers often make
5 Great Ways to finance your franchise - ONLINE EXCLUSIVE!

In the Know

Got questions? Try grilling franchisees for answers.

You've finally narrowed your franchise search. But have you asked the right questions? How do you know for sure?

Tap your best resource: the franchisees who've been there. To get you started, we sought one--Harris N. Terry, 27, a Back Yard Burgers franchisee in Madisonville, Kentucky--to answer your burning questions.

How did you know this was the right franchise for you?
Extensive financial, market and demographic research. There's a huge demand for quality products in a quick-service setting. Back Yard Burgers has a strategic position in the market.

Have you ever regretted buying your franchise?
No, but one challenge is managing and maintaining labor. We raised our hourly pay above that of the competition; this has drastically decreased our turnover rate. Improvement in customer service saves us money in the end.

What questions did you wish you had asked a franchisee?
I wished I had asked more regarding the time frame from the day the agreement is signed to the day the doors open for business.

What are the most crucial questions to ask a franchisee?
Where do you see the concept in 10 years? What are annual sales per store? What advice do you have on financing? What do you look for when selecting a site? What insight do you have on managing labor?

Did you have any prior experience in this industry? Is that essential?
I didn't have much restaurant experience, [but] Back Yard Burgers has a training program, which was helpful. What is essential is a desire to learn, work hard and adapt to changes within the industry.

--D.S.

Watch Your Step

How to avoid 8 mistakes first-time franchise buyers often make

1. Losing sight of what you want
It's easy to lose sight of your goals when hit with the franchise hard sell. Know what you want, and avoid franchises that don't meet your criteria.

2. Getting in over your head financially
Franchises are expensive. There are upfront fees, equipment costs, royalties and more. Know how much you can afford to spend on start-up. Write out a business plan showing financial projections, and stick to it.

3. Not getting feedback
Seek people who can evaluate a company objectively. Visit existing franchisees as well as some who have left the system. Ask them what they like and dislike about the franchise.

4. Failing to read the fine print
You can't afford to ignore information that can help you make the right decision. It's essential to read the Uniform Franchise Offering Circular (UFOC) and other related documents carefully.

In the FranchiseZone... Visit our "How to" archive for everything you need to know about buying a franchise.

5. Being penny-wise and pound-foolish
Pay to have a qualified lawyer and an accountant read the UFOC with a fine-toothed comb. Skimping on professional fees now could cost you thousands later.

6. Buying in too early
Buying in to a new system can be a great way to get in on the ground floor. But some new franchisors haven't yet worked out the bugs and may not have name recognition. Act extra cautiously when considering a new franchise. Meet other franchisees and pay attention to the founders' business experience.

7. Falling for exaggerated earnings claims
If the franchisor's claims of profit potential sound too good to be true, they probably are. By law, franchisors' earnings claims must be backed by hard data.

8. Not checking the warranty
The franchise agreement specifies alternatives for getting out of a franchise. Review them carefully with your lawyer before signing anything.

--A.C.

5 Great Sources for Franchise Funding

Increasingly, creativity is the name of the game when it comes to finding start-up capital, and nowhere is that more evident than in franchise financing. Here are five innovative approaches to funding:

1.The Sports Section, specializing in photographing youth sports teams, offers an independent contractor program allowing people a 3-year commitment working within an established franchised territory. It costs a fraction of the normal franchise fee. For details, call (800) 321-9127, ext. 141.

2. Chicago-area Hispanics can learn how to select, purchase, finance and maintain a franchise through the Latino Franchise Project. Created by the Hispanic Housing Development Corp., this program helps people connect with franchisors, navigate through the legal requirements and secure a portion of financing. Entrepreneurs must locate within a Latino community, hire more than 50 percent of employees from the neighborhood, and have available cash equivalent to at least 10 percent of the cost. For information, call (312) 443-1360.

3. Labe Bank in Chicago finances franchises for immigrants and prospective franchisees typically considered a bad credit risk. Among the approaches Labe uses: extending a line of credit instead of making a loan; accepting as collateral property owned by relatives or deposit accounts at the bank; and considering payment of rent, utilities and even loans from family members as evidence of repayment history. For information, call (773) 267-2700.

4.MaidPro's Road to Ownership program helps entrepreneurs work their way into franchise ownership. Qualified individuals work at a management-trainee wage learning the business for one to two years--helping them earn the $7,900 franchise fee. The company also co-signs a portion of a loan for any additional cash needed.

5. Cendant Hotel Group offers African Americans, Hispanics and Native Americans an incentive of up to $150,000 through its Keys To Success program. If you meet company credit and franchise requirements, have cash equal to 20 percent of the property value and satisfy Cendant brand quality assurance criteria, Cendant rebates a per-room development fee you can use for debt reduction, property improvement or, if a bank is willing, as part of the loan collateral.

--C.E.G.

Andrew A. Caffey is a practicing franchise attorney in the Washington, DC, area; an internationally recognized specialist in franchise and business opportunity law; and the former General Counsel of the International Franchise Association. Cynthia E. Griffin is a journalist in Los Angeles, California. Devlin Smith is a staff writer for Entrepreneur magazine.

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