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Are You Thinking About Buying A Franchise? Here Are 10 Things You Need To Know

Thinking about starting a new business? Want to be an entrepreneur? Not sure you want to start from the bottom? Purchasing a franchise may be an option for you. But, you will want to address several key areas as you embark upon your journey of discovery.

What is a franchise? It is an agreement between you (the franchisee) and a business (the franchisor) to use its brand, operating processes, and marketing strategies to help you expedite your investment returns. You are purchasing a system, and a name, and you will be required to follow the rules of the franchisor. In return, you should go to market more quickly—with the support of the franchisor—equipped with tried and true strategies. At the end of the day, your profitability should be expedited by capitalizing on the value that the franchisor brings to the table. That’s how it’s supposed to go.

With so many choices in franchising available, how do you know where to start?

 

#1 Know Yourself – What Do You Really Want?

Being an entrepreneur and starting a new business—whether it is a start from scratch franchise, or a takeover of an existing business—warrants having a clear idea about yourself and your goals. Entrepreneurship is not for the faint-hearted. It involves taking risks, forecasting, problem solving, and sometimes, just plain luck to succeed. When it’s all said and done, your degree of success always comes down to you and your ability to maneuver through the unplanned circumstances.  Ask yourself the tough questions and give yourself honest answers.

  • What do I bring to the table? What are my strengths and weakness? What do others think they are?
  • What am I interested in? Is it a hobby or is it something I am willing to invest in and think about every day?
  • Am I comfortable taking risks? What does that look like for me?
  • How many hours do I really want to work? How flexible am I?
  • Can I handle taking direction from others?
  • How comfortable am I with making decisions? With giving directions? What if I don’t agree with others?
  • Am I committed to work hard, to put in the hours, and to leave my comfort zone to be successful?
  • What if things don’t go according to plan? What if I lose money?

 

#2   Going It Alone or With A Partner

If you are considering a partnership, work through the pros and cons. Go back to #1 and ask these same questions of your potential partner. Decide ahead of time what roles you each will take on in the business. Plan ahead for success, failure, a future sale, or if someone wants out.

 

#3   Talk With The Experts

There is a plethora of franchise systems available. Experts estimate there are over 3,000 now, in over 75 industries, and more becoming available every day. Franchises are everywhere. Talk to their owners and find out about their experience. Ask them how they ended up with their franchise. How is it working for them? What would they do differently? Would they do it again?

Research and attend workshops on franchising. Attend franchise events and on-line webinars. Read all that you can on the topic.

 

#4   Seek out a Reputable Franchise Broker

Knowledgeable and ethical franchise brokers can be worth their weight in gold.  They can keep you from making poor decisions that could impact the remainder of your life. A good broker will use a profiling and consultative process to determine a business model unique for you. Having done their homework on the franchisor, the broker will use a business model to suggest specific franchises that fit best with your goals, skill sets, and interests, personally and professionally. Typically, the franchisor pays the broker fee. You have the benefit of someone to guide you through the process. A reputable broker will be candid with you. Talk to other franchise owners in your area and you’ll begin to hear certain names. Interview them and decide for yourself.

 

#5   Create your advisory board

Research and take advantage of resources in your area.  Small Business Development Centers (SBDCs) are located in communities to provide a vast array of technical assistance to small businesses and aspiring entrepreneurs. Call and request an appointment with a business consultant who can help you anticipate needs and steer you toward resources for now and later on. Another nonprofit organization, SCORE, has volunteer mentors with business experience. Consultants typically do not charge a fee. Building a relationship with a business consultant can be very helpful and can guide you through the ups and downs of the lifecycle of your business.

But don’t stop there. You will want to find a franchise attorney to review your documents and help with the corporate structure. If there is a particular specialty, such as healthcare, you may need a specialized attorney to also review your documents. An attorney can guide you through regulations or other important information that you need to know before you sign on the dotted line.

 

#6   Set Your Budget

Know your limits and promise yourself to stay within them. It may be tempting to stretch because a particular franchise has caught your attention, or a sophisticated franchise salesperson may charm you into going beyond your means. Stay true to your plan.

 

#7   Is it really semi-absentee?

Franchise models can be such that you can work full time in them, semi-absentee, or absentee. Here’s where knowing what you really want is important. More folks today are looking for semi-absentee opportunities while working in other jobs or pursuing other passions. This will require someone else working in your business.  As you consider this, you need to know if the franchise is truly part time or if it will require you to spend most of your time and energy to ensure its success. Be sure to ask other franchise owners as your conduct your due diligence.

 

#8   Tried and True or Emerging?

There are plenty of tried and true franchise systems available. But there are also emerging franchises that are either forging a new concept or are a new system starting up. It is important to know the difference, and with what levels of risk you are comfortable.

 

#9   What Should I Be Reading?

The Franchisor will provide you with a Federal Disclosure Document or FDD. It is a legal document required by the Federal Trade Commission, which must be presented to prospective buyers of franchises in the pre-sale disclosure process. It was originally known as the Uniform Franchise Offering Circular (UFOC).  This document discloses extensive information about the franchisor and the franchise organization intended to give potential franchisees enough information to make educated decisions about their investments. There should be a copy of the franchise agreement. Some states require a 14-day wait period between the receipt of the document and the signing of an agreement. Provide copies to your attorney. Be sure to get all of your questions answered, and don’t sign an agreement just yet.

 

You will also find a list of the fees in the FDD. 

  • An initial fee is payable at the signing of the agreement.
  • Royalties are a percentage of sales that are paid on an ongoing basis to the franchisor.            
  • A marketing fund is required by some franchisors for the purpose of system marketing efforts.
  • Total Initial Investment—usually stated within a range of cost, based upon franchisee experience.

 

#10   Now Get Ready To Take a Deep Dive

Now you are ready to embark on due diligence. Do this thoroughly before you fall in love with a concept, rely on what the salesperson told you, assume a business will be successful, sign any documents, or pay any money. Do your homework. Request the names of other franchisees to talk to. Go see their operations. Work with your advisory board. Spend the time that you need to do it right. Stick to your plan. Try to avoid analysis paralysis.

 

As you emerge from the due diligence phase you should know if a particular franchise will work for you. Don’t waste time if you can’t make a decision. If it isn’t right, move on. If it is, then get ready to take the leap. The only person you can count on to make the best decision for you is… you!

 

Ellen Sullivan is a healthcare quality improvement expert, registered nurse, licensed risk manager, and  a previous corporate executive in the healthcare industry.  She is an owner of a Doctors Express Urgent Care franchise  in Jacksonville and area developer for Northeast Florida and Southern Georgia.  Ellen  is passionate about access to quality, affordable healthcare and enjoys working with others to own their own business.   To learn more about franchise opportunities, contact Ellen at esullivan@doctorsexpress.comwww.doctorsexpressjacksonville.com.


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