If you want to invest in a new business, a franchise might be a good idea. Franchises are found in almost every industry; thus, prospective franchisors have a wide variety of options. The challenge arises when narrowing down your options and ultimately choosing the best option. Finding the right franchise continues to be stressful for most individuals. Here are some helpful tips as you make your decision:
5 Factors to Consider When Choosing a Franchise
- The Franchisor’s Professionalism
“Take note of the franchisor’s professionalism during your interactions, as it provides an idea of how the franchisor works,” suggests Jason W. Power of Franchise.Law. Are they prompt and thorough when dealing with your requests?
- Online Reviews
Check for franchisees’ experiences with the franchisor. If the feedback is consistent, you will understand how the company deals with its franchisees.
- Investment in Your Potential
Ensure the franchisor is invested in the franchise’s growth and success. You should have mutual expectations, and both work towards meeting them.
- Feedback From Current Franchisees
Speak to other franchisees to gain insight into the franchisor’s support system, licensing fees, and other exclusivities.
- A Strong Support System for Franchisees
The most beneficial aspect of franchising is that the brand is already established. Therefore, it is up to you to use the resources and knowledge to grow your business.
The Franchise Disclosure Document (FDD)
This document typically contains the franchisor’s obligations to a franchisee and possible fees. The franchisor should provide this document before you make any transactions. There are 23 sections in the document, and here are some elements to pay extra attention to:
Post or Current Litigation
This section will explain the franchisor’s experience. It also gives information on whether the franchisor or the people in charge have been bankrupt or involved in litigations relating to the brand or the franchisor.
Payments and Revenue Model
This section addresses the finances around the franchise. It explains how much you will pay the franchisor before and after opening and the percentage of franchisee revenue from the franchisor’s total income. Items 19 and 21 (Financial performance representations and financial statements) will tell you all about the franchisor’s finances.
Turnover and Resource Strain
You will find a list of current and former franchisees who have interacted with the franchisor. You can contact these franchisees and inquire about the franchise’s profitability, challenges, and experience with the franchisor.
Franchise Agreement
This legal document explains the obligations, restrictions of operation, permissions, and expectations of the franchisor and the franchisee. It also includes a payment schedule for all fees the franchisee makes to the franchisor.
The franchise agreement generally gives the franchisee a right to the franchisor’s intellectual properties for a specified period. These rights are often particular and hardly allow for expansion or error. This ensures the franchisor’s standards and brand representation are consistent.
Please note that the franchise disclosure document and agreement are significant to your franchise, and it is always essential to have your lawyer review and advise you on their provisions.
Final Thoughts
Franchising is a good idea for entrepreneurs venturing into something new. A franchise is a good option for business rookies as most of the marketing is done for them, and the supply chain and support systems are already established. Always do enough research and consult before choosing a franchise. Take advantage of the discovery day, as you can interact with officials and learn more about the franchise.
Media Information:
Franchise.Law
(980) 375-5881
101 S. Tryon St
Suite 2700
Charlotte, NC 28280
