ComplianceAugust 13, 2020

How to choose a franchise

Franchising is hot and getting hotter. A new franchise is opened in the U.S. every eight minutes, and franchising sales now account for more than 40 percent of all U.S. retail sales, according to the International Franchise Association.

But just as the number of small business owners who buy a franchise has risen, so has the number of companies looking to sell franchises in their goods or services. That growth has introduced both more opportunities for franchising and more risk for the buyer.

With so many choices, how does a person decide if a particular franchise is the right way to go? There aren't any foolproof answers, but here are some suggestions that may take some of the guesswork out of franchise shopping:

  • Get a copy from the franchisor of what is called the UFOC, the Uniform Franchise Offering Circular. Federal law requires the franchisor to supply you with a copy of a franchise disclosure statement once you are a prospect for one of their franchises, but you can order it from them ahead of time. Have your attorney or accountant review the document.
  • If you're still interested after reading the UFOC, go to the franchisor's offices. Talk to them. Spend time with them. Get to know them. "It's important," says Nikki Gahr, the owner of two Express Personnel Services franchises in Missouri, "that you share the same values and culture and that you want the same things." After more than 13 years as a franchisee, Gahr says she still talks to her franchisor virtually every day.
  • Ask for a complete list of the company's franchisees. If they provide you with a select list of less than all of their franchisees, be suspicious. Call as many of the franchisees as you possibly can. Doc Cohen, the owner of 23 Great American Cookies franchises in four states, suggests that you ask each franchisee the following questions: Are you happy with the franchisor? Do they give you the support you need? Do they listen to you? Are they responsive? Because talking about money can be touchy, rather than ask directly how much money a franchisee makes, he suggests asking questions such as these: Can a person make money with this franchisor? How much volume is possible?
  • Talk to many types of franchise owners. Regardless of how many franchisees you call, Cohen says, make sure that you call at least one franchisee who has multiple stores and one franchisee who has only a single store. You're trying to find out if the franchisor treats them equally well. Since you'll be starting out as a single store owner, you want to make sure that the franchisor will pay attention to you.
  • Ask the franchisor for the names of people who have left the system. Call them and discuss their reasons for leaving.
  • Go visit as many of the franchise stores as you can. Get a feel for what you'll be doing as the owner. If being elbow-deep in cookie dough is not what you want, Cohen says, it's best to find that out ahead of time.

The most successful franchisors over the years, Cohen says, are the ones that have understood that a franchise is a partnership and that there must be give and take between franchisor and franchisee. If you do your homework, you should be able to eliminate much of the guessing about which franchisors will make good business partners with you.

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