Whether you’re making your first foray into the world of franchise ownership, or it’s your latest in a long history of investments, there’s one essential step in the process you can’t afford to overlook: doing your research.
A chunk of investigation and a touch of introspection are required before reaching an informed decision about a franchise opportunity. Do your research right, and you’ll reveal any red flags you might have missed at first glance. If your digging delivers a clean slate, you’ll know you’ve discovered a franchise opportunity worth pursuing further.
Not sure what kind of questions you should be asking in order to get the inside scoop on a promising franchise opportunity? Here are a few subjects you should consider when doing your due diligence.
Evaluate your own personality and attributes
Franchise ownership is often portrayed as an opportunity for self-employment, but the reality is your freedom only goes so far: in most franchise environments, there’s more rule-following than there is room for creative expression. If you’re not comfortable accepting directives and demands from corporate headquarters, then franchising might not be a good fit for you.
Even if you’re excited about the idea of franchise ownership, it’s still important to assess your own strengths and weaknesses in relation to the relevant opportunity. Are you the type of person who can succeed in sales, or food services? To make sure you avoid tunnel vision or potential blind spots, solicit outside opinions from trusted people who know you well and are willing to speak frankly about your talents and limits – they’ll tell you how reasonable the idea of you starting Franchise X really is.
Read the Franchise Disclosure Document
When evaluating a franchise opportunity, no source of information is more meaningful than the Franchise Disclosure Document (FDD). This is where you’ll find out about any fees a franchisee is responsible for, plus a full breakdown of start-up costs. The FDD also covers corporate financial statements and contracts, any legal issues involving the franchise or its affiliates, details on territorial exclusivity (if any), and information on the training provided to new franchisees.
Consider the services of a franchise lawyer to help you sift through the fine print of a promising franchise opportunity and it’s FDD. The document may be dense, but it’s a must-read before making any final decision.
Talk to existing franchise owners
Nobody knows better what life is like running a specific franchise than someone who already does so. Reach out to existing franchise owners in your area and elsewhere and pick their brains about the experience – they’ll have a uniquely informed view of the pros and cons of working with the franchisor you’re interested in. Ask them how long it took to turn a profit, what kind of support they got along the way, whether they’ve had any issues hiring staff, and what the hardest part of the journey has been. Not everyone you interview will come clean about their struggles, if they’ve had them, so try to speak to as many franchisees as you can to get the best possible sample of different experiences.
Consider working at the franchise you’re interested in
One surefire way to avoid a costly and complicated mistake with a franchise opportunity is by taking a job at an existing location of the business you’re interested in. If you can commit three to six months to get an inside look at the day-to-day existence of a particular franchise, you’ll know with certainty whether or not it’s going to be a good fit for you. Some franchisors even demand new owners have a minimum amount of experience working at the business, viewing it as an ideal way to weed out potential misfits from their pool of franchise operators.
Make sure the money works
If you’ve done your research and feel good about moving forward with a particular franchise opportunity, it’s time to call in the professionals. A franchise lawyer can answer questions about contracts and such, while an accountant can make sure your financial situation is secure. Remember that you’ll need enough money to cover up-front costs, plus six to 12 months of business and personal expenses. That way, you’ll know you’ve got enough cash to get you through any lean times before the business begins to turn a profit.