Is Franchising Right For You? - Page 3 of 4

Is Franchising Right For You?

Photo: Scott Council

also scour FRANdata, an Arlington, Virginia-based company that offers objective information about franchising, some for a fee. You might be able to circumnavigate fees by going directly to franchisors’ websites or reading trade magazines. A franchise expo could also help you make a decision. Once you’ve settled on a compatible industry, you can start researching and comparing franchises.

Documentation required.
The Franchise Disclosure Document, or FDD, contains critical information you need to know about a company before investing. All FDDs contain 23 items, including actual contracts franchisees will have to sign, as well as all of the company’s financial statements, information on staff, and the responsibilities of the franchisor and franchisee. “You cannot make a decision about going into franchising without thoroughly reviewing the FDD,” says Miriam Brewer, director of education and diversity for the International Franchise Association. “Everything you need to know about the franchisor is in that document.” You should also know about royalty fees, market saturation, territory restrictions (if any), and terms for renewing or selling the franchise, which are all included in the FDD.

While some private companies offer Franchise Disclosure Documents for a fee, Brewer says there’s no need for a potential franchisee to pay for an FDD. Franchisors are required by law to give prospective franchisees a free copy of the FDD before anyone signs a contract or pays any franchise fees.

Cohen says once you obtain the report, you should get a lawyer and financial adviser to help you sort through the documents because they can be dense. He suggests the International Franchise Association for expert legal advice, but you can also consult resources such as the American Association of Franchisees & Dealers’ LegaLine to help you find a lawyer with franchising expertise. When going through contracts, you should ask your lawyer if the contract treats you fairly, says Purvin. “Unfortunately most businessmen are only focused on the business terms and forget about the contract boilerplate that could seriously impact their rights.” Kiesha Geyen adds that when you’re comparing franchises and reviewing agreements, you should “pay close attention to any mandatory performance requirements, and understand whether the agreement provides flexibility related to economic conditions.”

When in doubt, check it out.
Cohen says franchisors typically have “discovery days” where prospective franchisees visit headquarters and learn more about the business to determine whether the franchisor is a good fit. At this point, you should be spending some hands-on time in the business to get a feel for what it’s like. The Geyens and the Dillards say they devoted about three months to researching and preparing themselves to get into their respective lines of business. You’ll also want to talk to franchisees. Ask current and former franchise owners about their