So you are ready to be in business for yourself and you think that owning a franchise is the way to go. Before you make the big decision to invest in a franchise, it’s important that you spend enough time researching and educating yourself on various franchise opportunities. Here are 5 steps to help you evaluating franchise opportunities so you can find the franchise that works best for you.
1. Find a franchise that fits you – Think about what your interests are, your prior experience, and what you’re good at. There are lots of questions you need to ask yourself. How many hours or days a week are you prepared and willing to work in your business? Are you comfortable managing employees? Is owning and operating the franchise going to give you the lifestyle you want? Imagine what a regular day operating this business will look like.
2. Obtain information about franchisors – Research via the internet or obtain materials directly from the franchisors. If the franchisor is publicly held, annual financial statements are published by the Securities and Exchange Commission. Investigate news stories about the franchisor. Are there any lawsuits or disputes? Do they have a good reputation and is the franchise popular among consumers?
3. Determine the financial requirements of potential franchisors – Most franchisors will disclose this as part of the initial information they provide to interested investors. The start-up payments required can vary significantly from franchise to franchise. You’ll have to find a franchise opportunity that fits your budget.
4. Speak to several franchisees – Determine whether they’ve had a good experience as a franchisee and if they would do it again. Are they happy with the support they’re receiving from the franchisor? Are they happy with the amount of training and the marketing help they are receiving?
5. Examine the Uniform Franchise Offering Circular (UFOC) – Many franchisors are reluctant to share this document until the interested investor has applied for the franchise, had his or her background and finances investigated, and interviewed with the franchisor. The UFOC contains a wealth of information that allows potential franchisees and their CPAs or attorneys to evaluate the franchise. It includes information about audited financial statements, franchise fees and start-up payments required, information regarding any litigation involving the franchisor, required franchise agreement, and any other contracts the franchisee has to sign. It also includes the franchisor’s claims regarding earnings of its franchises. Make sure you receive enough information to evaluate earnings. Ask for information on results of franchises in the same geographical area. If the franchisor is reluctant to provide the information needed for a good evaluation, it’s a red flag. Federal law requires that franchisors allow at least 10 days for the potential franchisee to review the UFOC.
Allen & Company, PC - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta. Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses. Extensive experience working with franchised quick service restaurants and other franchised businesses.