The key to success in owning a franchise is finding a franchise that is not only reputable and honest, but is also the “right” fit for you. You need to do a thorough investigation of the franchise your going to buy, while at the same time they should be evaluating you to be sure you are a good fit for them.
Remember, we discussed in the previous articles how the franchise has to fit your goals, financial situation, personality, and management style, and so on. And, there has to be a demand for its products or services in your market. The right franchise should also have a proven established business system, which means that the franchisor should have a history of successful franchisees. You should ONLY consider franchise companies that have very few failures or closures, low franchisee turnover rates, and a good reputation with its franchisees.
How can you tell if a franchise company is sound, honest, and reputable? The best way do this once you have narrowed down your search to no more than two to three franchises is to make arrangements to speak with the company representatives, and also to call the current and former franchisees listed in the Uniform Franchise Offering Circular (UFOC).
Ask them detailed questions about:
site selection and development
initial training
pre-opening and opening support
how well the franchisor works with the franchisees
what kind of ongoing training and support do they offer
ask about how quickly they respond to franchisee questions and concerns
how effective are their marketing and advertising programs
are there any indications of financial difficulties within the franchise
Once you have completed this research and after speaking with franchisees, you feel confident that the franchisor provides the kind of training and ongoing support that you need, and that the franchisor/franchisee relations are good, you’re ready to take the four final steps toward becoming a franchise owner.
1. Visit the franchisors corporate headquarter: Meet the senior executives of at least two franchises. To determine whether you are compatible and have common values and goals, it’s best to meet the executives face to face. Most franchises have what they call “Discovery Days,” where serious candidates fly out to company headquarters to spend an entire day with the senior management team and support staff
2. Go to work in the franchise: The only way to really know whether a particular franchise is a good fit for you is to work in it. Some franchisors, in fact, require that potential franchisees work in the franchise before completing the franchise agreement. Most franchisors have programs that enable you to work in their franchise for a limited time to see if it’s a good fit. An opportunity that sounds great on paper may seem a lot different when you actually do the job.
3. Along with your qualified franchise attorney negotiate your contract: The franchise agreement is the actual contract you sign when you buy a franchise. A generic franchise agreement is generally sent with the UFOC and is attached as part of Item 22 in the back of the UFOC. It differs from the UFOC because the UFOC is not an actual contract; it is only a document that discloses information. The franchise agreement is a contract you and the franchisor sign, and it becomes legally binding on both parties.
All the information regarding company policy your rights and responsibilities, and the rights and responsibilities of the franchisor should be the same in the UFOC as in the franchise agreement. But the franchise agreement is not an exact duplicate of the UFOC. Because the UFOC is a disclosure document, it actually contains more information than the franchise agreement. For example, the list of franchisees, the litigation history of the franchise, the business experience of the company officers, and any earnings claims appear in the UFOC, but not in the franchise agreement. If the franchise agreement is not attached to the UFOC, contact the franchisor and ask them to send the agreement to you.
4. Sign the franchise agreement: Federal law states that you must have the UFOC for at least 10 days and the franchise agreement for at least 5 days before signing it. There is every good reason for this waiting, or “cooling off” period. It gives you a chance to make sure that the verbal promises and claims made to you by company representatives are the same as the claims and promises made in the UFOC and franchise agreement.
Use the time you have to make sure there are no discrepancies between your rights and responsibilities as described in the UFOC and as described in the franchise agreement. Have an experienced franchise attorney and a trusted accountant review both documents for you. They will help you make the right choice. A little money spent up front getting good advice from experienced professionals can potentially save you a lot of money and trouble in the years ahead.
In negotiating your franchise agreement, make sure the document leaves nothing out, and get it all in writing. While you have no guarantees that your franchise will live up to your expectations, your contract can help protect your from the risks involved in being a franchisee.
The 5 and 10 day waiting periods are minimum times the law states you must have these documents before signing. But take as long as you need to feel comfortable with the contract before signing. Don’t feel pressured to sign before you are ready whether that’s 10 days or 2 months after receiving the contract. Maybe, it’s just not the right time for you to get into a franchise. And that’s OK too.