When you are trying to decide whether to buy into a franchise there are several factors to consider.
First, make sure you are looking at a solid and effective franchise that offers real value. It has to be a good one. There are hundreds of good ones, but lots of bad ones too.
With a franchise, you are paying an up-front franchise fee and a percentage of sales—it can be a lot of money—to get two main benefits:
- A formula you can follow, a proven formula that guides you through the process, avoiding expensive mistakes. The more detail, the better.
- National marketing to enhance your business with a brand name, television advertising, etc.
I would want to know about training costs, needs, quality and availability. I would also want to know from other owners how well the parent company meets franchisees’ needs regarding product and system-wide marketing. I’d want to know also whether their marketing actually works and how much supplemental marketing you need to do. Do they supply signage? Do you have any choice about signage, etc.?
I’d also call the Chamber of Commerce (or some other local organization with accurate demographics) and try to find out how many similar businesses there are in your area and as much information as possible about how they’ve done the last few years. Also whether the community is growing or shrinking and how the economy in general is doing.
Visit some other franchisees, talk to them, get as much information as you can. I’d talk to at least 10 other franchisees before I spent my money on somebody’s franchise formula business. I’d also find an attorney with experience in this area, and go through with him or her some of the questions you should be asking. For example, is the franchisor going to protect your territory or sell another franchise across the street? How can you tell for sure? What guarantees does the franchisor make about national advertising, etc.?
In the end you have to decide if the franchise costs are worth the money. Sometimes they are, and sometimes they aren’t.
Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.
