Every time we get on line to "check out" franchises we find ourselves more confused because they all seem so enticing. The whole purpose behind franchise companies posting such compelling information on the internet is to catch the curiosity of buyers and hopefully bring more franchise owners into their system. On the surface all franchise companies appear desirable until the cover is peeled off and more important information is available for analysis. Careful due diligence means that a prospect will acquire a detailed understanding of the franchise model before making any decisions. Two of the biggest considerations are: Does this franchise meet my lifestyle goals and does it fit into my financial plan? There are many other considerations, but my point is that you must look beyond the internet pages to find the decision making information.
An important distinction needs to be made here. A "good" franchise may be good for me but not for you. If it’s not for you, it doesn’t mean the model is bad, but rather that the model may not be compatible with your lifestyle and investment goals. So, a bad "fit" for you doesn’t mean it’s a bad franchise. It just means that it’s time to move on and find a different offering that fits your parameters. On the other hand there are "bad" franchises out there that sound good but would certainly be bad for both of us even if the "fit" did seem right. This franchise model could be contracting in the number of stores open or coming to a screeching halt in terms of new store openings. The franchise system could be failing financially as a result of obsolete product or service. They could be in a decline that they may never recover from leaving many franchisees out to dry. How would you know this? It’s not found on the glitzy pages of the internet for sure.
Franchise companies are required by Federal Law to disclose much information about the franchise model. A Franchise Disclosure Document (FDD) is required to be forwarded to every prospect before any kind of agreement is ever reached. A prospect cannot sign a franchise agreement without being properly disclosed. The FDD is updated yearly. However, it takes a professional to know what is not being disclosed and what the implication could mean for the prospect. Digging deep enough to understand the financial strength of the company is a valuable exercise. If they are not strong, you may be short changed in the support department when you need it most.
Well capitalized franchise companies have more to give back to franchisees in terms of training, support, marketing, advertising and in many other areas. Under-capitalized franchise companies can really hurt your chances for success in their system. It’s imperative to understand this landscape with every franchise model you entertain. In our next post we will talk more about selection criteria that should be used to help you through the strength / weakness analysis of a franchise brand.
Sixth in a series of 8 posts by Al McCooey, President of Summit Franchises and a franchise consultant who helps clients identify excellent fitting franchises that they will enjoy operating and have the opportunity to be highly successful at. Learn more about Al and franchising at http://www.summitfranchises.com. Next week: Franchise Selection Criteria; What’s Important?