BUYING A SMALL BUSINESS

Information to Secure from a Franchisor

Here's a helpful checklist for investigating franchise opportunities.
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  1. Is the franchisor a one-person company? or
    Is the franchisor a corporation with an experienced management that is well trained?
  2. Is the franchisor offering you an exclusive territory for the length of the franchise? or
    Can the franchisor sell a second or third franchise in your market area?
  3. Do you have the right of first refusal to adjacent areas?
  4. Will the franchisor sublet space to you? or
    Will he or she assist you in finding a location for your franchise operation?
  5. Does the franchisor provide financing? If so, what are the terms?
  6. Does the franchisor require any fees -- other than those described in the offering circular -- from the franchisee? If so, what are they?
  7. Has the franchisor given you information regarding actual, average, or forecasted sales?
  8. Has the franchisor given you information regarding actual, average, or forecasted profits?
  9. Has the franchisor given you information regarding actual, average, or forecasted earnings?
    What information have you received?
  10. Will the franchisor provide you with the success rates of existing franchisees?
    Will the franchisor provide you with their names and locations?
  11. Are there any restrictions on what items you may sell? If so, what are they?
  12. Does your prospective franchisor allow variances in the contracts of some of his or her other franchisees? What is the nature of the variances?
  13. In the event you sell your franchise back to your franchisor under the right of first refusal, will you be compensated for the goodwill you have built into the business?
  14. Does the franchisor have any federally registered trademarks, service marks, trade names, logotypes, and/or symbols?
  15. Are you, as a franchisee, entitled to use them without reservation? or
    Are there restrictions, exceptions, or conditions? If so, what are they?
  16. Does the franchisor have existing patents and copyrights on equipment you will use or items you will sell?
  17. Does the franchisor have endorsement agreements with any public figures for advertising purposes? If so, what are the terms?
  18. Has the franchisor investigated you carefully enough to assure him or herself that you can successfully operate the franchise at a profit both to him or her and to you?
  19. Has the franchisor complied with FTC and state disclosure laws?
  20. Does the franchisor have a reputation for honesty and fair dealing among the local firms holding his or her franchise?

 

Other Questions

 

  1. How many years has the firm offering you a franchise been in operation?
  2. Describe the franchise area offered you.
  3. What is the total investment the franchisor requires from the franchisee?
  4. How does the franchisor use the initial franchise fees?
  5. What is the extent of the training the franchisor will provide for you?
  6. What are your obligations for purchasing or leasing goods or services from the franchisor or other designated sources?
  7. What are your obligations in relation to purchasing or leasing goods or services in accordance with the franchisor's specifications?
  8. What are the terms of your agreement regarding termination, modification, and renewal conditions of the franchise agreement?
  9. Under what circumstances can you terminate the franchise agreement?
  10. If you decide to cancel the franchise agreement, what will it cost you?
  11. What is the background experience and achievement records of key personnel (their "track records")?
  12. How successful is the franchise operation? (Use Dun & Bradstreet reports or magazine articles to supplement information the franchisor gives you.)
  13. What is the franchisor's experience in relation to past litigation or prior bankruptcies?
  14. What is the quality of the financial statements the franchisor provides you?
  15. Exactly what can the franchisor do for you that you cannot do for yourself?

 

Copyright © 1999 PSI-Research

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Last updated: Oct 24, 1999




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