the franchise is low-cost, people assume you don’t have to do the same amount of research as when buying a hotel franchise, for example,” Barnes says. Ask the franchisor for the Uniform Franchise Offering Circular, which lists the addresses and home phone numbers of existing franchisees and those that have left the system. You can also call other franchise owners who can verify the franchisor’s claims. The Federal Trade Commission and the Department of Commerce maintain consumer information on how to buy a franchise. Proctor researched a court case against Coverall. “It didn’t scare me away from my decision to buy, but at least I got the facts and saw both sides of the story,” he says.
Read the fine print. Thanks to an FTC ruling, franchisors must provide every potential buyer with a disclosure document. Under this rule, the document must be made available at least 10 business days before you purchase a franchise. The disclosure statement lays out the businesses’ litigation history, financial problems and bankruptcy filings, and describes your obligations to the franchisor. Read it carefully and take it to an attorney for review.
Look for growth. Your fate as a franchise owner is linked to the company’s fate. Investigate whether the franchisor has a plan for growth and development. Check their annual report for projected earnings. There are signs that a company has potential for growth. Ask yourself if the company invests in technology. Is there a computer system linking all the stores? Is the franchise advertised on the Internet? What are their research and development capabilities? Does the company’s plan for growth match your own?If you play your cards right, you can turn your smal
l investment into a huge payoff. “I haven’t peaked out yet,” says Proctor. “I can earn $50,000 a month with this business, and I’m well on my own.”