How to Research a Franchise
Only you can make the important decision about owning your own business. Anyone making such a decision needs solid information, but how you obtain that information is a personal choice. Here are three key elements to thorough investigation:
1. Read the offering circular. Take notes about any questions you want the franchiser to answer. Highlight the sections you may wish your lawyer to explain.
2. Glean inside information from the people who run the business on a daily basis: the franchisees. No one is better equipped to tell you what you need to know. If you approach franchisees properly, they'll most likely be forthcoming with useful answers. To make the most of your learning, you will have to conduct telephone interviews and visit franchisees in their places of business.
3. Visit the home office of the franchiser to get firsthand impressions of the franchiser's staff.
Pace and Cost Issues
Spread over four weeks, this approach is moderately paced yet steady, designed to help you make a sound decision in a reasonable amount of time. There is little or no expense for the first two weeks. Also, at the end of each week, be sure to test your level of interest in continuing the research and buying a franchise.
1. Read the offering circular.As you read it, compile two lists of questions -- one for the franchiser and one for the franchisees. Highlight any sections of the circular that you may wish your lawyer to explain at a later date. You should definitely plan on tapping some professional advice along the way.
2. Interview franchisees.Commit to completing eight to ten telephone appointments with your chosen franchisees. View these as structured interviews with you as the interviewer. Take a look at your list of questions and divide it into four groups: A, B, C, and D, according to level of importance. This will help you quickly focus on the most important items. As always, take complete notes of each interview.
3. Write questions for the franchiser.On a separate sheet of paper, write down any questions for the franchiser that occur to you as you speak with franchisees. When you complete the first round of interviews, call the franchiser to get answers to these questions. As always, take careful notes.
4. Check your level of interest. Now that your first week is complete, ask yourself, "Am I still interested? Is my interest growing or declining?" If you decide to continue your research, then go on to week 2.
1. Revise your questions. Edit your list of questions for franchisees. If you received the same answers from eight to ten people, chances are you have learned all you can, so drop it. Add to the list any new questions that came up as a result of your previous interviews.
2. Interview more franchisees.Plan to complete eight to ten telephone interviews with franchisees. Again, take careful notes. Your goal is to develop a list of more questions for the franchiser.
3. Brainstorm more questions for the franchiser. Call the franchiser on Friday with you new list of questions. Take complete notes.
4. Check your interest level again.Still interested? Then move on to week 3.
Up to this point, you have spent some time and money on telephone calls, but you've learned a great deal from reliable sources. Now you will incur some additional expense.
1. Arrange to visit franchisees.Plan to make three or more visits with franchisees in their places of business. Prepare yourself before you go by making a list of what you want to learn. The franchisees will detect your level of seriousness by the amount of investigative research you have already completed. Thanks to that research, you are prepared to learn a great deal more. During these visits, you are asking yourself these unspoken questions: Can I see myself doing this business? Will I like it? Is it what I have been looking for?
2. Get qualified professional advisers. Consider hiring a lawyer who has many years of experience in franchising. (Caution: Hire a lawyer for legal advice, not business opinion.) First, ask the cost of a thorough review of the offering circular and franchise agreement. You may also want to hire a qualified accountant to review the financial strength of the franchiser and to advise you of the relative economic merits of the opportunity.
3. Check your interest level. After completing the visits and receiving the opinion of advisers, ask yourself, "Am I still interested?" If so, go on to week 4.
1. Visit the home office of the franchiser.Arrange to visit the franchise company's headquarters. Be sure to have your contact person schedule appointments for you with key players: company officers, for example, and managers in training, accounting, operations, customer service, and accounting. Treat these meetings as formal interviews by planning what you'd want to learn. They'll be sizing you up, so you'd better be sizing them up, too. Allow your intuition to answer this question: Are these the kind of people I want as my (senior) partners?
Conclusion:Now you have a mountain of information and impressions about the franchise. You also have the advice of professionals such as a lawyer and an accountant. You are prepared to decide whether the business is right for you.
Whether the answer is yes or no, you can be confident that you carried out an intelligent and diligent investigation.
Adapted from an article written by Howard Bassuk and Gerald Moriarty of the Franchise Network in San Diego. Copyright © 1999.