What to Ask a Franchisee

When you begin your franchise due diligence process of determining whether a particular franchise is right for you, you will need to contact current and past franchise business owners. This part of the process is referred as validation. During validation you speak with the owners and get their perspective.

Following are a list of questions to ask current franchise owners:

How long have you been in business?

Would you make the same decision again?

How is corporate support?

Are your earnings meeting your expectations?

What profit margin can I expect? - year 1, year 2, year 3

How long did it take you to break even?

Any unforeseen expenses?

What is your biggest challenge in the business?

How long do you plan to stay in this business?

What do you wish you would have known when you started?

What is the best thing about this company?

As you can see, these are the basic questions that will help you see beyond the surface of any franchise. With the help of a franchise consultant you will be able to find the answers, helping you make the right decision, thus making validation an extremely important step of the franchise due diligence process.

Path to Owning a Franchise

To break down a large goal into manageable tasks is necessary to be able to confidently complete any project. It is no different for finding a franchise business that meets your goals. We've broken down the process of buying a franchise into 3 simple steps: Exploration, Evaluation and Execution. This is our proven, E3 Process.

These steps can further be divided into sub parts. The following breakdown shows the typical path toward franchise ownership.

Exploration: Explore Your Goals

Analyze Lifestyle Needs

Analyze Business Goals

Analyze current financial position and future goals

Help Determine Type of Business

Evaluation: Evaluate Your Options

Research Applicable Franchises

Obtain Franchise Packet and FDD

Speak in-depth with Franchisors

Interview Existing Franchisees

Second Interview with Franchise

Consult with Attorney and Accountant

Visit Franchise Headquarters

Execution: Execute Your Plan

Enter Into A Franchise Agreement

Obtain Real Estate

Franchise Initial Training

Complete Construction

In-Store Training

Open For Business

On-Going Support

We've developed our proven E3 process of franchise due diligence to simplify and expedite the entire process. Contact one of our FranFinders expert Franchise Consultants today for your free franchise consultation.

Appealing Characteristics of a Franchise

Being able to quickly identify the type of franchise business that meets your interests and objectives will save you time and money not to mention headaches. By understanding the basic franchise characteristics you will be able to make better choices.

Franchises types fall into five basic categories. Understanding what is involved with each category will help you target the type of business that appeals to your needs. Below are listed the categories with their attributes.

Home Based

Low overhead

Low initial investment

No Inventory

No Receivables

No/Little equipment needed

No/Or Few employees

High income potential

Good working hours/Possibly part-time

Direct Marketing of your Services Necessary

Business to Business

Do business with other businesses

9-5/Business hours

No consumers

Sales related

Face to Face

Professional experience needed

High Income Potential

Management/Consulting experience

Direct Marketing of your Services Necessary

Service

Skilled to Non Skilled/Blue collar

Lower Education Requirements

Craftsmanship Techniques and Training

Manual or Hands On Work

Maintenance Industry or Focused

Management of Unskilled/Low wage employees

Lower initial investment

Strong Marketing Programs Incorporated

Moderate to High Income Potential

Passive/Absentee

Simple Business Models

Investment Return Major Characteristic

Management of Few Unskilled/Low wage Employees

Moderate investment Moderate to Good Income

No need to be there/Part-time

Multiple Unit Potential

Continues Working Current Job/Running Current Business

Strong Marketing Programs Incorporated

Retail/Food

Looking for latest trends/Fad businesses

Brand name recognition

7 days a week/Long hours

Manage unskilled/Low wage employees/High turnover

Cash business

High initial investment

Building/Lease

Equipment/Fixtures

High ongoing overhead/Operating costs

Long start up process/Build out

Inventory/Spoilage

No selling/Open door customers come to you

Moderate/Good Income

Now that you know the basic categories and their main characteristics, you can make a better decision as to which franchise is best for you.

When conducting your franchise due diligence, keep in mind the free services of FranFinders expert franchise consultants.

Importance of the Franchise Due Diligence Process

The entire process of franchise due diligence, for both a Franchisor and a Franchise Candidate, should be about determining whether there is unified thinking. The best advice is to step back at the end of your due diligence process and ask yourself the following question: Did the process help both parties to determine if they have unified thinking about the franchise business at hand? If the answer is not yes, then you've either got more work to do, or something with the system is not right, and you should examine alternatives.

Franchising is about finding the right strategic-partnerships to allow both parties to prosper at a higher level together than they would if they were not to enter into an agreement to do business together.

First of all, you must be comfortable with the Franchising concept itself. The business of the Franchisor is not Franchising. Their business is fast food, or muffler parts, or telecom consulting. Franchising is their strategy to execute that business with optimum results. 

Franchising is the Franchisor's strategy to penetrate and dominate a marketplace - simultaneously. You've got to be comfortable with the Franchisor's strategies to do just that. If those strategies make sense to you, it can be a great ride in achieving success together. It can be a great ride in building a brand that increases in value as time marches on. Franchising is also the Franchisor's strategy of pooling resources. Those resources include the resources of the Franchisor, as well as those of the individuals that join the system as Franchisees including their ideas, talents, motivations, financial and management resources.

If you are comfortable with these basic concepts of Franchising, you should then assess your needs, wants and desires to make sure that they can be met with a successful Franchise in the system. You should also bring to the surface all of your fears, uncertainties, and doubts to determine if you feel you can help solve them with the business of the Franchisor, and the future you can create for yourself with that business. The worst thing you can do is leave them buried.

Then there are the basic pragmatic questions. Will the Operating Systems of the Franchisor help you to deliver the business products and services more efficiently, and will they help you avoid re-creating a whole slew of wheels? Will the Support Systems help you to deliver the products and services better and better over time? Will the Brand continue to increase in value for your benefit?

Finally, can you see yourself reaching your goals, dreams and objectives by operating a successful business in the Franchisor's system? Will the Franchise help you to achieve those goals and dreams?

If the Franchisor's strategies make sense to you, and you can see yourself achieving your goals and dreams through the Franchise and its systems, then you have unified thinking - and the sky can be your only limit

When conducting your franchise due diligence, keep in mind the free services of FranFinders expert franchise consultants.

What You Should Know About the FDD?

Franchise Disclosure Document (FDD), formerly called the Uniform Federal Offering Circular, (UFOC) provides prospective franchise investors with information about a prospective franchise. Company history, background information, risk factors and financial statements are just a few of the items covered.

To protect and inform the investor, the Federal Trade Commission (FTC) determined that a standardized disclosure must be in place for companies to offer their businesses as a franchise. Because the format is standardized, it makes for easy side-by-side comparisons between companies.

The FDD is provided to potential investors of franchises. Which means that this document is usually given to prospective investors who have made efforts to qualify for any particular franchise.  Usually a dialog has been established between the investor and the franchisor before the FDD is requested.

Regarding the format of the FDD. It consists of cover pages, table of contents, main body and exhibits.

The cover pages are straight-forward. They contain the name, address, contact information and basic business information. It also stresses how the FDD should be used and where to go for additional help.  There is also a state cover page which informs the investor that there may be state franchise laws. 

Additionally there is a paragraph on Risk Factors. This area points out potential risks inherent in the particular investment.

The table of contents simply list out the items that make of the body and exhibits of the FDD.

The main portion of the FDD is comprised of twenty-three items.

Item 1: The Franchisor and any Parents, Predecessors and Affiliates

Item 2: Business Experience

Item 3: Litigation

Item 4: Bankruptcy

Item 5: Initial Franchise Fee

Item 6: Other Fees

Item 7: Estimated Initial Investment

Item 8: Restrictions on Sources of Products and Services

Item 9: Franchisee’s Obligations

Item 10: Financing

Item 11: Franchisor’s Assistance, Advertising, Computer Systems and Training

Item 12: Territory

Item 13: Trademarks

Item 14: Patents, Copyrights and Proprietary Information

Item 15: Obligation to Participate in the Actual Operation of the Franchise Business

Item 16: Restrictions on What the Franchisee May Sell

Item 17: Renewal, Termination, Transfer and Dispute Resolution

Item 18: Public Figures

Item 19: Financial Performance Representations

Item 20: Outlets and Franchisee Information

Item 21: Financial Statements

Item 22: Contracts

Item 23: Receipts

In addition, there may be a number of Exhibits. These may include:

List of State Agencies/Agents for Service of Process
Franchise Agreement with Exhibits
Financial Statements
Lease
Collateral Assignment of Lease
Operations Manual
List of Franchisees, Current and Former
Release
Assignment of Franchise Agreement
State Addendums
Spousal/Partner Consent

To be able to invest in any franchise business, you will be required to have received the FDD. By familiarizing yourself with the format, you will have a better understanding of the franchise purchase process. Consider enlisting the assistance of a franchise consultant to aid you in your franchise search.

What is a CFE?

A Certified Franchise Executive (CFE) is a person who has chosen to take his career in franchise to the next level. He does this by taking a total of 3500 hours of continuing education classes which include courses in experience, participation, core, and electives. Experience and participation classes count for 500 hours each; core classes count for 1600 hours; elective course work earns a CFE student 900 hours.

Those who choose to become CFEs demonstrate that they have taken the initiative to continue their education above and beyond what is or may be required for franchise operations. CFE students are able to reach new goals in such areas as professional development and career planning.

In addition, those who achieve CFE certification also display a sense of pride and self-fulfillment: both personal and professional, and exhibit dedication and loyalty to their careers. Further, they show others how much they believe in the franchising industry and their decision to pursue a career in that area.

Becoming a Certified Franchise Executive allows you to place the letters "CFE" after your name, just as you would any other title or educational accomplishment. When people see this, they are aware that you have voluntarily committed yourself to a higher standard in the franchising field.

Further, becoming a CFE casts you in a more positive light when it comes to seeking employment or working towards a promotion or other type of career advancement.

In order to be eligible to pursue a CFE, a person must be considered as already being active in the franchising field. From there, all necessary requirements of the CFE program must be successfully completed.

A person pursuing CFE certification may take the required courses on his own time, working them around his individual schedule. However, all courses must be completed within three years after he has enrolled in the program. Average completion time is usually 1½ to 2 years. If a person has not completed the program by the end of the third year, it will be necessary for him to enroll again in the problem. This will incur an additional enrollment fee.

A person will be notified when he is getting close to the three-year deadline. In this way, he can arrange to either speed up the process or prepare for re-enrollment.

Anyone who is employed in the franchise industry would do well to consider achieving CFE certification.

Contact one for FranFinders franchise consultants to learn more about franchises and the franchise industry.

What's in a Franchise Agreement?

Franchises are different; therefore, franchise agreements must by necessity be different in scope and tone. However, there are certain provisions that are or should be included in most franchise agreements.

• Obligations of both franchisors and franchisees concerning business operations must be spelled out, in as complete detail as possible.
• The amount of training and operational support that the franchiser will be responsible for providing must be clearly stated. This information should also include the cost of the training and operational support.
• The territory in which you are allowed to operate your franchise must be plainly stated. In addition, any exclusion which may apply must also appear in this section.
• How long the franchise agreement will be in force must be included in the document. Renewal rights must also be stated.
• The amount of investment required by the franchisee must appear in the agreement.
• Guidelines and regulations concerning trademarks, patents and signs and the rights and responsibilities of the franchisee as pertaining to them must be included in the agreement, and written in such a manner that the franchisee will be able to follow them with minimal, if any, problems.
• Fee amounts, including franchise, royalty, and service fees for which the franchisee is responsible must be stated in the agreement.
• The responsibilities of both franchisee and franchisor where tax issues are concerned must be addressed. 
• Conditions and restrictions on the sale or transfer of the franchise must be clearly stated.
• Any advertising policies that must be adhered to by the franchisee should be plainly stated.
• How franchisee termination issues will be handled must be included in the agreement.
• Dispute settlement guidelines must be in the agreement. Further, the paragraphs addressing these must include how the company will settle disputes, how disputes concerning operating practices will be handled, dispute cancellations, and who will be responsible for attorney fees.

By contacting one of FranFinders expert franchise consultants, you can be referred to a competent franchise attorney that can review any franchise agreement sample.