How to Research a Franchise
Posted January 14, 2009
Sell skin-care products or own a hotel. Groom dogs, help people lose weight or do their taxes. These are just a few of the opportunities in today's franchise world, which includes a boggling variety of concepts selling every imaginable product and service. How do you know which one you'd truly enjoy? How do you know which one represents the best business opportunity?
Franchisors can dazzle prospects with glossy brochures and slick presentations, but you'll need to get beyond those to the hard facts about their offer. To help, we assembled a panel of experts and asked them to identify the key questions you should ask and the best ways to get franchisors and franchisees to tell you what you want to know.
Once you identify a brand you're curious about, start by requesting and thoroughly reading the Franchise Disclosure Document, or FDD, that each franchisor is legally required to provide to prospects. If you don't understand everything in it, have a franchise attorney or consultant explain the terms.
Then you're ready to start talking to franchisors. If he could only ask a franchisor three questions, Jeff Elgin, CEO of franchise consulting firm FranChoice, says they would be:
What's your number-one focus? "The answer you want is ‘the success of our franchisees,'" says Elgin. "But I've gotten: ‘Our number-one focus is our own bottom line.' That would concern me."
Why do franchisees get in trouble? Try to identify exactly what's going wrong for troubled franchisees, Elgin says. If the franchisor says, "They didn't follow the system," press on by asking in what way. "You want to learn where the pressure point is," Elgin says. "What is the difficult thing to do successfully in this system?"
How are conflicts resolved? Ask franchisors for details of a recent franchisee conflict and how it was resolved. You'll learn a lot about the franchisor's respect for franchisees and its commitment to making them successful, Elgin says. If the franchisor says there's never been a conflict, be skeptical. "If it has more than three franchisees, it has had a conflict," Elgin says.
One more thought: Prospects should ask franchisors which skills their franchisees need most, says Joel Libava, president of consulting firm Franchise Selection Specialists Inc. At many franchises, the most successful franchisees have similar skills--they are mostly former marketing executives or sales managers. See if you fit in to their winning group.
