| A Franchise System can be a very effective way to | | | | succeed as a franchisee? What other Personnel |
| open and operate a small business, especially for | | | | resources can you provide? |
| those without a lot of experience in operating and | | | | - Are you prepared to spend a majority of your |
| owning their own business. There are many | | | | business life with this franchiser? |
| advantages in using a Franchise System, such as, | | | | -- The Market |
| turn-key operations, marketing and business planning; | | | | - Does an adequate market exist in your area? |
| large corporate support; lower learning curve; | | | | - Will the market support the price level of the |
| established accounting, cost control and management | | | | franchiser's products and services? |
| systems; brand identification; training programs; | | | | - What are the population demographic trends for |
| national and regional advertising; customer service | | | | your territory over the next 5 years? |
| programs; market trend responsiveness; supplier and | | | | - What will be the demand for your product and |
| vendor discounts; among others. However successful | | | | service in 5 years? |
| Franchise Systems are expensive. The fees / costs | | | | - What is the non-franchise and related franchise |
| consist of a franchise fee, royalty fees and start-up | | | | competition in your territory and region? |
| costs. So it is very important to have a solid due | | | | EXAMINE FRANCHISE OPPORTUNITIES CLOSELY |
| diligence process in place to determine if a particular | | | | - Determine which franchises are growing fastest. |
| Franchise Opportunity is right for you, and whether | | | | - Research market growth possibilities. |
| the costs to establish and run the franchise match | | | | - Consult Entrepreneur Magazine for its |
| the effectiveness of the Franchiser's Package | | | | comprehensive Franchise 500 Listings. |
| Offering. | | | | - Utilize the U.S. Commerce Department's Franchise |
| TYPES OF FRANCHISING SYSTEMS | | | | Opportunity Handbook, which is published annually. |
| Product / Service and Trademark Franchising | | | | - Contact the International Franchise Association for |
| This is an arrangement which the franchisee is | | | | assistance. |
| granted the right to sell a well recognized brand. Most | | | | Determine What the Franchise Can Do for You |
| franchisees concentrate on one franchiser's product/ | | | | TYPICAL FRANCHISER SERVICES |
| service line, identifying their business with the | | | | - Start-up help, to include market analysis, site |
| franchise. Examples include: Automobile Dealerships, | | | | location, financial advice; building and equipment design |
| Gas Stations, Soft Drink Bottlers, etc. The franchiser | | | | and purchase. |
| exercises little control over the franchisee's business, | | | | - Successful Operational System. |
| with the product/ service integrity being the biggest | | | | - Accounting and Cost Control System. |
| concern of the franchiser. | | | | - Monthly operating results support; performance |
| - Structure and Responsibilities | | | | standards; financial auditing; franchisee financial |
| -- Franchiser provides a Standardized Product | | | | comparative analysis. |
| -- Franchisee Pays Franchise Fees and Responsibilities | | | | - Financial Assistance: land, building, equipment, |
| include: | | | | inventory and working capital. |
| * Marketing | | | | - Site purchase assistance. |
| * Training | | | | - Standardized Construction, Design and Signage. |
| * Control System | | | | - Training Programs. |
| * Operating System | | | | - National and Regional Advertising Program. |
| * Accounting System | | | | - Brand Recognition Promotion. |
| * Building, Equipment, Signage | | | | - Customer Services Standards and Program. |
| Business Format Franchising | | | | - Responsiveness to market changes. |
| Franchisee is granted the right to use a turn-key | | | | - Supplier discounting via large volume ordering. |
| marketing system, with substantial assistance and | | | | FRANCHISE DUE DILIGENCE |
| guidance from the franchiser. Types of franchises | | | | Examine more than one franchise and compare / |
| include Restaurants, Retail, Hotels, Business Services; | | | | contrast through a standardized checklist (see |
| Automotive Products, Parts and Services; | | | | previous section). Investigate franchises in the same |
| Convenience Stores; Entertainment Centers and so | | | | line of business. |
| on. | | | | SPEAK WITH EXISTING FRANCHISEES |
| - Structure and Responsibilities | | | | - Contact several franchise owners listed in the FDD, |
| -- Franchiser provides: | | | | as well as, not referenced by the Franchiser to solicit |
| * Building Plans | | | | their experiences. |
| * Equipment & Signage | | | | - Seek out franchisees that have been in the |
| * Marketing System | | | | business over 5 years. |
| * Business Plan | | | | - Talk with experienced franchisees about what to |
| * Operating System | | | | expect during the first year of operation- the typical |
| * Training Personnel | | | | success or failure period for a franchise. |
| * Accounting System | | | | - Ask franchisees to share their Business Plan with |
| * Control Systems | | | | you. This gives you an inside track on the operational |
| -- Franchisee provides: | | | | and planning expectations for a typical franchise, |
| * Fees | | | | along with keys to success. |
| * Compliance | | | | - Ask franchisees what the Franchiser does to justify |
| * Reporting | | | | all the fees charged. |
| HOW TO DETERMINE IF A FRANCHISE IS RIGHT | | | | - Determine how well prepared franchisees were |
| FOR YOU | | | | when opening the franchise. Surprises? Franchiser |
| Follow a Franchise Analysis Checklist | | | | weaknesses? |
| -- About The Franchise | | | | - How effective are the Marketing, Promotion, |
| - Has your attorney approved the franchise | | | | Branding and Advertising Programs? Do they bring |
| contract? | | | | the right customer to franchisees? |
| - What legal grey areas have been identified? | | | | - Determine the real financial numbers. How much to |
| - Will you have exclusive territory? | | | | open a franchise? How quickly a franchise started |
| - Does the franchiser work with any other franchise | | | | making money? Get the real story and compare it to |
| handling similar products and services? | | | | the Franchiser's disclosure to determine credibility. |
| - What are the Franchise Contract termination | | | | - Do your research and homework prior to meeting |
| penalties? | | | | with Franchisees so you don't waste their time and |
| - If you sell your franchise, will you be compensated | | | | you appear serious. |
| for goodwill? | | | | - Make a good, professional impression on franchisees |
| -- The Franchiser | | | | as they often will report their impressions to the |
| - What is the franchiser's number one focus? | | | | Franchiser. |
| - How have franchisees in the past run into trouble? | | | | -Understand where the franchisee is coming from: i.e. |
| Difficulties? | | | | Someone close to your territory may give you faulty |
| - What skills franchisees need most? | | | | information if he feels competitively threatened. Or, a |
| - How are conflicts resolved? | | | | franchisee may overstate his/ her success. |
| - Request the bios of Top Management. Do they | | | | - If allowed by the FDD, consider a Joint Venture |
| have entrepreneurial backgrounds? | | | | with an experienced Franchisee. An 80/20 relationship |
| - Do the franchiser's earnings claims differ from their | | | | can make a lot of sense to both the new and |
| Franchiser Disclosure (FDD)? | | | | experienced franchisees in a proximate region or |
| - Has the Franchiser executed detailed due diligence | | | | area. |
| on your qualifications? | | | | - Try to spend an entire day with each Franchisee. |
| - How many years has the Franchiser been | | | | This is the only way to get a true fell for the |
| operating? | | | | franchise and determine why the franchisee is |
| - Does the franchiser have a reputation among the | | | | successful (or conversely, why he/ she is blowing |
| franchisees, competitors and business world for | | | | smoke). Build a relationship with franchisees, and you |
| honesty, integrity, accountability and fair dealing? | | | | will be more apt to receive honest, diligent and |
| - Has the franchiser shown you certified and audited | | | | detailed feedback. |
| financials on franchisees in your region and area which | | | | - Ask franchisees if the franchiser encourages the |
| you can validate? | | | | franchisee to share feedback, ideas, successes, |
| - Does the franchiser provide Executive Management | | | | failures and whether these experiences get |
| and Personnel Training Programs? | | | | incorporated in the field. |
| - Does the franchiser provide any Capital or Credit? | | | | - Is the franchisee happy with their life post franchise |
| - What merchandising Programs and Training does | | | | opening? Is the business enjoyable? |
| the franchise offer? | | | | - For more ways to get a franchisee to open up to |
| - Will the franchiser assist with site location? | | | | you, visit SEEK PROFESSIONAL ADVICE |
| - Does the franchiser have adequate financing to | | | | - Franchise Attorney and Accountant |
| implement its Franchisee Plan? | | | | - Franchising Consultant |
| - Does the Franchiser have a highly trained and | | | | - Business Consultant |
| experienced management team? | | | | - Finance Consultant |
| - What can the Franchiser bring to the table which | | | | UNDERSTAND YOUR LEGAL AND EHTICAL |
| you can't adeptly do yourself? | | | | RESPONSIBILITIES |
| - Has the franchiser complied with State Laws in the | | | | - The International Franchise Association serves |
| past? What State Laws are in place regarding | | | | Franchisers in more than 50 countries and has a code |
| Franchise Sales? | | | | of Franchisers' Ethics and Obligations to Franchisees. |
| -- The Franchisee | | | | - Franchiser members pledge to comply with all laws |
| - How much Equity Capital will you need to: | | | | and make complete, accurate, non-misleading |
| - Purchase the Franchise? | | | | disclosure statements and documents. |
| - Operate until Break-Even? | | | | - Franchiser members pledge to only accept |
| -Where will you get the Equity Capital? | | | | franchisees that meet prescribed qualifications. |
| - Are you prepared to give up some independence | | | | - Understand your rights if the Franchiser attempts |
| for the advantages offered by the Franchiser? | | | | to buy back the franchise. |
| - Do you believe you have the qualifications to | | | | |