SCORE Small Business Blog

Franchising: Is It Right for Me?
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Things to Consider Before Buying a Franchise

If you have a limited business background, you may want to consider buying a franchise.  There are many benefits invloved. When considering a franchise, keep the following five tips in mind:

  1. open_woman_cafeYou are a customer to the franchisor. Many people believe that going into a franchise is like joining a partnership where you, the franchisee, will be protected from failure. This is not true. While franchisee companies have a much higher success rate than individual start-up companies, up to 20 percent of all franchises do not do well. However, this failure rate is far lower than that of individual start ups.
  2. You and the franchisor have different goals. Although both parties; franchisee and franchisor, have the common goal of building the brand, the franchisor’s goal is to sell franchises and the franchisee’s goal is to service the consumer or end user.
  3. You may not have an ongoing relationship with the franchisor sales representative. If you are dealing with an independent agent or with one of the brokerage houses which represent franchisors, chances are that although they are knowledgeable about the franchise, you will not see that person after the point of sale. If you are dealing with a sales person salaried by the franchisor, s/he will want to work with you in the future, and that may cause the sales process to take on a different perspective.
  4. You have legal rights when dealing with the franchisor. Be careful if the franchisor tells you how much you can earn if you invest in their system. The Federal Trade Commission (FTC) requires that franchisors who make such claims provide you with written substantiation. Be sure to ask for and receive this. If they don’t provide it, consider the claims to be suspect.
  5. You are protected by the UFOC. The Uniform Franchise Offering Circular (UFOC) defines what the franchisor will do for you and expects of you. You must carefully review the UFOC before purchasing the franchise. The FTC protects franchisee prospects up until the point of sale, but after this, the UFOC becomes vitally important.

What franchise questions do you have? Leave a comment below.

Betty Otte, SCORE Orange County
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Discussion (4) Comment


  1. bettyVisitor

    Hi, Nicole: SPOT ON. Research is crucial when purchasing a franchise just like when buying a free standing business.
    When you get the Franchise Disclosure Document youwill find a list of existing franchisees, call them and ask about the support and training they receive. You can find out a lot about a franchisor by talking to other franchisees.
    Betty


  2. bettyVisitor

    Hi, Cathy: Thanks for your post and sorry to be so late in answering. Yes, there is always fear involved in change.
    There are some exceptionally good franchises and some rather shady ones. So much depends on the support given by the franchisor which is why you must do research b/4 any purchase just like buying a free standing business. Find the nearest SCORE office and call to make an appointment with the consultant specializing in franchising. They can walk you through the process and take much of the dread out of it. Hope this helps.
    Betty


  3. NicholeVisitor

    In my experience, the biggest issue that potential franchisees often overlook is the financial strength of the franchisor. Many franchisors are in horrendous financial condition, which likely will become a threat to a franchisee’s business. No matter how good a franchisee’s business becomes, it may suffer irreparable harm if the franchisor collapses or otherwise is unable to provide the support to the franchise that is expected and required. Before signing on the dotted line, make sure you and your professional advisors receive and understand financial statements of the franchisor, including the terms of all indebtedness for borrowed monies, and the terms of any secured obligations.


  4. CathyVisitor

    Hi Betty,

    I’ve been in the corporate world for over 20 years and would like to pursue other opportunities, like starting my own business. With my business experience, I am thinking of business coaching or management/leadership coaching. One avenue that I am researching is a franchise called AviCoach. But I am not sure if this is right for me. I am torn. I think it is fear of not initially making the money I make in corporate, fear of doing it alone, fear of buying a franchise. Fear Fear. What advise can you give me to help me make a decision. What are the pros/cons of franchise ownership? With all these resources now available, like Score, can’t I just do it on my own. Help!!!

 

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