CHECKLIST OF QUESTIONS TO ANSWER BEFORE YOU BUY A FRANCHISE
Franchise businesses such as Wendy's, McDonald's and Jack-In-The-Box
are booming. The people setting up franchise ideas and businesses
know a good thing, and are really promoting this idea. Franchises
for just about every conceivable kind of business are being sold in
ever increasing numbers.
Some franchises are very good. They treat both the franchisor and
the franchisee very well. Others are very one-sided. Still others
are almost total rip-offs that trap one into paying ten to fifty times
the actual value of the business idea, equipment, or what ever it is
they are trying to get you to buy.
Before putting any money into a franchise, you should investigate
everything completely. We've prepared a list of questions you should
be asking, and should get satisfactory answers to before investing.
- Has your attorney studied the franchise contract, discussed it
completely with
you, and do you both approve it without reservations?
- Does the franchise require you to take any steps which are either
illegal or even
border on illegal, or are otherwise questionable or unwise in
your state, county
or city?
- Does the franchise give you an exclusive territory for the length
of the franchise
period, or can the franchisor sell a second or third franchise
in your territory?
- Is this franchisor connected in any way with any other franchise
company
handling similar products or services?
- If you answered yes to the above question, what is your protection
against the
second franchising company?
- Under what circumstances can you end the franchise contract, and
at what
costs to you?
- If you sell your franchise, will you be compensated for your goodwill
or will it
be lost to you?
- How many years has the firm offering you the franchise been in
operation?
- Does the company offering you this franchise have a reputation
for honesty and
fair dealing among its franchisees?
- Has the franchisor shown you any certified figures indicating
exact net prof its
of one or more of its members, and have you personally checked
the figures
with these people?
- Will the franchisor assist you with: a) A management training
program; b) An
employee training program; c) A public relations and advertising
program;
- Capital; e) Credit; f) Merchandising ideas?
- If needed, will the franchisor assist you in finding a suitable
location?
- Is the franchising firm adequately financed so that it can carry
out its stated
plans?
- Does the franchisor have experienced management, trained in-depth?
- Exactly what can the franchisor do for you that you cannot do
for yourself?
- Has the franchisor investigated you carefully enough to assure
itself that you
can successfully operate at a profit to both of you?
- Does your state have a law regulating the sale of franchises,
and has the
franchisor complied with that law to your satisfaction?
- How much equity capital will you need to purchase the franchise
and operate
it until your income equals your expenses?
If you can get the answers to each of these questions, and those answers
satisfy you, then you're probably thinking about buying a pretty good
franchise deal. However, if you're in doubt about any of these points,
be sure to check it out and know the answers for certain before you
invest or sign anything.
Buying a franchise can give you a measure of security, and in some
cases, sure-fire profits. Business surveys show that fewer than 20
percent of all new franchised businesses fail. This is in comparison
to a 60 to 80 percent failure rate for all new businesses started in
this country each year.
Information regarding specific franchising ideas can be found in the
franchising directories, which are generally available at the local
library. Often there will be a notice posted in franchise outlets
themselves.
If you can afford the entry into this business, statistics are on
your side. You are now armed with some CAUTION and STOP and GO signs!
