10 tips for finding a franchise operation

A franchise operation can be a good investment for people who dream of self employment. Franchise opportunities fall into three basic categories: distribution of products, services and wholesale trade. The franchise you select must be one that will keep your interest over the years to come. Not even a lucrative franchise opportunity will work for you if you find the business dull or boring. However, like all business opportunities, there are risks. You can minimize the risks by doing your homework before signing on the dotted line.

Conduct preliminary research

Ask the franchise company to send brochures, pamphlets and videos, if possible. Then, locate the nearest two or three franchise operations and visit each one. Talk to the dealer, employees and customers to get their reaction to the product or service. Tip: Ask the franchisee if he or she would buy the franchise of the same again.

Study of business documents

U.S. franchisors are required by law to provide documents that provide full disclosure of franchise opportunities. (The laws may differ in other countries). These documents may be called the offering prospectus (OP), the Information Memorandum or Offering Circular franchise. These documents provide a wide range of information about the franchisor. Look for a company that has three years or more. Managers should have a positive experience in franchising activities and have a good track record of previous litigation and bankruptcies.

See business professionals

Take the OP, the disclosure document and franchise agreement to an accountant, lawyer, management consultant or other professional activity for the analysis of financial and legal aspects.

Read the policy of the franchisor Concerning the Protection of Natural Resources

You'll want to know the franchisor's policy regarding the number of units of the franchise will establish within a geographical area. Do you have a protected territory? You do not want to discover that the company has established a unit similar to the other side of the road operation. Also, some franchisors also open and operate corporate-owned outlets as well as franchised stores. What is their policy regarding company stores?

What taxes have to pay?

Expect to pay an initial franchise fee (often non-refundable), plus the cost of startup expenses, inventory, licenses, insurance, and a "grand opening fee" for initial promotion. Anticipate annual expenses such as commissions and marketing expenses royalty free. Find out what part of your own advertising rates to be taken and what part goes to national advertising. Tip: Ask for hidden fees.

When Will You Break Even?

Based on your investment and the breakeven analyzes in the OP, how long before you reach the break even point and start making a return on investment? Do you have financial strategies that will allow you and your business to survive until the breakeven point? What kind of profits could reasonably expect to make? Franchisors are not required by U.S. law to offer profit projections to their franchisees. However, if they do, they are required to base their projections on concrete research.

How are conflicts resolved?

There is a conflict resolution policy in place? What else to say about the franchise's approach to dealing with conflict? In such circumstances the company may terminate the contract? If the contract is terminated, you lose your investment? When the contract is for renewal? Hint: Franchise contracts that are renewed do not necessarily maintain the same conditions of the original contract. Terms could be less favorable.

Advertising Campaign of the franchisor will you benefit?

You are required to pay a fee to the franchisor's advertising campaign. Discover the extent to which this campaign will be your outlet. You have no control over how the advertising dollars are spent? Can you conduct your own advertising? You do not need permission to do that? Unaffiliated receive any commissions or rebates that the franchisor receives?

What is the history of failed Outlets?

Before investing, find the number of outlets that have failed. A large number might indicate systemic problems. Be aware that some franchisors will disguise failed outlets by turning them into company-owned stores. If you buy an existing outlet, be sure to find how many previous owners have operated the service and why they left. Hint: Conduct interviews with people who have recently left or joined the franchise. Be sure to ask if the franchise company is the delivery of supports and services promised ....