Potential franchise buyers know before making a final decision, they need to obtain information from other franchisees and also, their possible franchisors. But what information do they need to get?
Generally, I recommend using the Franchise Disclosure Document (FDD) as a guide. Read through it and ask a potential franchisor very specific questions about each item listed. It’s a can’t miss road map. Here’s a start.
What is the history of the franchise concept?
What is the founder’s vision? Who is on the executive and support teams? What experience do they bring to the table? If members of the franchisor team haven’t worked at a location, how have they learned about daily operations? Have any of them owned a business before? It’s important to understand how these individuals relate to franchisees.
How high could expenses go?
All expenses should be clearly defined. It’s imperative to gain a complete understanding of the range of expenses – and why they are what they are. Inquire about assistance for everything from advertising to site selection to your grand opening.
Know what’s going on at the front line.
What is the temperament of the franchise group nationally and within your market or region? Of course, I highly recommend speaking with franchisees, too. Make sure to ask them about costs, problems, profits, and trends. Discuss competition with both the franchisor and franchisees.
Ask about exit strategies.
At some point, you may want to exit the system, or you may have to exit. If you have to exit, is there support if you’re in trouble? Ask about transfer fees and the process of selling your business. Understand the franchisor’s approval process. What happened to each franchisee listed under terminated or closed franchisees on the FDD? What happened to their locations? Have they continued operation under a new franchisee or corporate? Is the location still available? Ask yourself if you would consider a long-term relationship with this brand and its leadership.
Before making your final decision.
After this process is complete and you’ve reviewed your notes, trust your gut instinct! Take your time and think things through until you’re 100% sure of your decision. Make sure you have all your support mechanisms in place, including friends and family. Do not kid yourself. Do not lie to yourself. And do not justify any negatives. Being honest with yourself will help you make the right decision.
Get your financial house in order.
Lenders (and franchisors) have certain minimum criteria when it comes to approving franchisee candidates. Some may require a minimum net worth and a certain amount in liquid assets. It would benefit you to set yourself up financially – for example: find out your credit score, calculate your debt-to-income ratio, and even update your resume.
You do this with a home, why not a business? By getting pre-qualified through a funding provider, you can better identify what you can afford.
Don’t underestimate how much funding you will need.
One of the leading causes of small business failure is undercapitalization or insufficient funding. Make sure you have enough of a buffer to help with any unexpected operating costs.
Talk to a franchise funding professional.
Securing funding can be challenging but is one of the most important steps in starting a business. Knowing your options and ensuring you have a solid funding plan in place is often the key to long-term success and profitability.
Benetrends Financial has been funding America’s most popular brands for over 35 years. Their innovative, fast and economical suite of funding solutions is designed to help franchisees secure the capital needed to successfully launch their dreams. Contact them for a complimentary funding consultation or find out your fundability with their free pre-qualification funding calculator.
A quote from Ray Kroc.
There are many quotes from arguably the most successful fast-food retailer, Ray Kroc that reveal what he was thinking and learning about the business as he was building the McDonald’s chain in the U.S. and ultimately around the world. I believe I like this one best:
“It requires a certain kind of mind to see beauty in a hamburger bun. Yet is it any more unusual to find grace in the texture and softly curved silhouette of a bun than to reflect lovingly on the hackles of a favorite fishing fly? Or the arrangement of textures and colors in a butterfly’s wing? Not if you’re a McDonald’s man. Not if you view the bun as an essential material in the art of serving a great many meals fast.”