As with all your business decisions, it is best to spend some time collecting accurate information before making any decisions.

Once you have your information together then you need to know how best to analyze it to reach a sensible decision and I have always found that using a checklist of things that have to be done is a great place to start.

If you want to know if a franchise is for you, then this a useful checklist of major points to cover before making that decision.

Shop Around

The first thing to do is to find companies offering franchises.

Online, a simple search on Google is going to throw up a very long list for you to check. Have a look yourself and you will see what I mean.

You should then contact the companies directly, and shop around to get a good idea of what is available.

At this stage you should work out how much you can afford to invest and where you can obtain financing from if you require it.

Careful investigation prior to purchasing a franchise also requires that you understand the UFOC (Uniform Franchise Offering Circular).

You need to look at what the franchise agreement involves.  For example, look at what training and support will be provided, is there any assistance in finding and developing a location, and how about the sources of inventory and supplies.

You should research the companies’ recent growth and prospects for future growth.  You should also seek advice from professionals and business people you respect.

By shopping around, you will find the information needed to help you make an informed decision on which franchise is the right one for you.

Is A Franchise The Right Choice For Me?

It is the right choice for you if you the franchisee are:

1. Suited to the industry

2. Matched with a franchise company that has the same business philosophy as you

3. Comfortable with the basic idea of the franchise system in general

Important questions to ask yourself include:

1. Am I suited to the industry physically and mentally (temperament and attitude) ?

2. Am I suited to the industry by both work and life experience?

3. Am I suited to the industry by educational qualifications achieved and learning capacity?

4. Am I suited to the industry by financial ability?

5. What type of work is most appealing to me? For example, do I enjoy working with food, mechanical things, people, real estate, books and recordings, sporting goods, etc.?

6. Am I prepared to work hard enough to make this work?

7. Am I prepared to take the financial risks required?

8. Do my advisors, family, and friends, whose opinions I value, think I am adaptable and trainable?

9. How do I react to systems and controls?

10. Am I a loner – resenting authority and restraints, or can I accept guidance and direction happily?

11. If I prefer to act as a passive investor in the franchise, will the company accept this?

12. How do I personally feel about the company’s image and products and services?

The answers to these questions will help you decide whether you are meant to be a franchisee.

Know Your Rights

The Federal Trade Commission Franchise Rule is a federal regulation which requires franchisors to prepare an extensive disclosure document and to give a copy to any prospective franchise purchaser before he or she buys a franchise.

The disclosure document normally used to comply with the regulations is called a Uniform Franchise Offering Circular, or UFOC.

Within the UFOC are many different categories of information that the franchise must disclose. They must show:

1. The required fees

2. Basic investment levels

3. Any bankruptcy and or litigation history of the franchise company

4. The term of the franchise

5. A financial statement of the franchisor

6. Any earnings claims that the company makes (if they are not included here then treat them as if they do not exist).

Both your attorney and your accountant should review the UFOC and your franchise agreement with you. These are important legal documents that you need to understand.

In addition to this, fourteen states currently require that franchise companies file or register their franchise offerings with a state agency: California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington, and Wisconsin.

These states, plus Oregon, also have disclosure regulations similar to those of the Federal Trade Commission.

By means of so-called “business opportunity laws,” certain other states regulate the offer and sale of a “business opportunity” which may include the offering of a franchise under the state’s definition of a “business opportunity.”

Get your attorney to check it out for you.

Check Everything – Ignorance Or Blind Faith Is No Excuse

The UFOC disclosure document makes fraud and deception less likely.

The franchisor has, under penalty of law, made a set of very important statements that you can use to judge the offer they make to you.

So, play safe and check it all out for yourself.

You should carefully consider the information provided and evaluate the materials, including the history and reputation of the company and its officers.

Without a shadow of a doubt, be absolutely, definitely sure that you talk to a substantial number of other franchisees of your own choice (as in not fostered on you by the franchisor) who have already obtained franchises from the company you’re considering. Ask them to confirm any information or claims made by the franchise company.  What is their opinion of the franchisor, are they glad they became a franchisee?

Know Your Figures – What Is It Going To Cost?

While investment requirements may differ tremendously depending on the industry and the type of business, it is important to know what to expect.

Total start-up costs can range from $20,000 or less, to over $1,000,000, depending on the franchise selected, and whether it is necessary to own or lease real estate to operate the business.

Although seventy percent of franchisors charge an initial franchise fee of $40,000 or less, the average investment, and this is excluding real estate costs, runs out to between $350,000 and $400,000.

So you can see there must be one hell of a lot of additional costs coming from somewhere.

You need to know these as early in the proceedings as you can. You don’t want to waste your time looking at opportunities that are outside of your budget.

Remember, knowledge is power and you are accumulating new knowledge at an amazing rate. By reading these articles and carrying out your research you are placing yourself in the top 5% of entrepreneurs.

Feel good about that? You should!

This article was written by Brian K Fitzgibbon CPA.

Brian is an experienced accountant and small business consultant. He runs his own business, lectures extensively on small business topics and has checked out and valued many hundreds of small businesses for buyers.

Brian is also the author of the highly acclaimed and invaluable
"How To Value A Business And Buy It Without Fear"
A do-it-yourself guide for first-time and experienced buyers alike.

To download a FREE Chapter from Brian's book please follow this link: "HowToValueBusiness.com"

January 18th, 2009 | Tags: buy a business, buying a business tips, buying a franchise, checklist, franchise | Category: articles | Subscribe to comments | Leave a comment | Trackback URL  |