To Franchise Or Not To Franchise

by Lela Davidson

Is it safer to start a franchise than going out on your own?  Maybe, but make sure you know what you’re getting into.  Before getting in too deep, obtain the facts, either from the franchisors or for a fee from companies like FRANdata. The disclosures, known as a Franchise Disclosure Documents, require franchisors to reveal information on 23 items, from numbers of lawsuits and bankruptcies to fees and other estimated costs.  Run the numbers carefully and consider your franchise an investment.  Ask lots of questions to furthur investigate the opportunity.

How Much?
Make sure you understand the total cost of purchase.  The franchise fee isn’t the only expense.  Learn all you can about payments for advertising, training, inventory, insurance, and royalties.

Who Are They?
Is the franchise a household name or a start-up?  You’ll pay more for an established brand, but it may be worth it.  Make sure the franchisor is financially stable and free from litigation.   Get names of a few other franchisees you can contact to find out about the business firsthand.  Are they picky about franchisees or do they just want your franchise fee?  Read the disclosures, but use your gut too.

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Who Are Your Customers?
Don’t forget your market research.  Does your community want and need this product or service?  Find out how many other franchises have they opened and where are they located.  Ask out about territories.  You don’t want another Deluxe Donut shop opening up a block away.

What’s Your Exit Strategy?
Yes, your franchise is going to be the new love of your life.  But what if it’s not?  Find out the details of selling your franchise, or severing from the franchisor, if that’s an option.

Most important, make sure this business is something you can pour yourself into full time.  While you may be able to hire managers at some future date, you need to set the business up yourself and work it in order to create a foundation for success.