The Three R’s of How to Buy a Franchise
By Kelly Spann
Buying a franchise can be a very exciting step in your life. It can also be a confusing and risky process. These “Three R’s” will help you figure out how to buy a franchise and feel confident in your investment.
RESEARCH – This is crucial. The franchisor will certainly give you plenty of information to review, but they might not give you all the information you need to make an informed decision.
It’s time to hit the internet! Pull up your favorite search engine and do a couple different searches by typing in the franchise you are considering purchasing and the words “franchisee complaints,” “franchisee scam,” “franchisee fraud,” and “franchisee lawsuit.” For example, “Stratus Franchisee complaints.” No one can have 100% customer satisfaction, but if you find several pages full of franchisee complaints, you should see that as a red flag. It is also important to read over the complaints to see if current or former franchisees are reporting the same issues in various locations. If the same complaints are being made by franchisees all across the country, chances are there is a problem with the entire franchise system.
If you are still interested in the franchise after you have checked out all the reviews and complaints, you should research the company itself. Find out the who, where, and how. Who started the franchise? Who runs it? Where does the company operate?
Try performing internet searches on the people who own the company. Is it easy to find information on them, or do they seem to be hiding behind their corporate photos on the website? Pay attention to where the information is coming from. You might find there are a couple pages of results praising each person, but are these sources linked to the company itself? Quite often the majority of articles about the owners comes from press releases written by the company. While that isn’t necessarily a bad thing, you should keep the source in mind before allowing yourself to be easily fooled by their own company singing their praises.
Where does the company operate? How many franchises are in your location/state? How long has the business been franchised? Did it exist prior to franchising? These are all very important questions to ask. This information should be easy to find. If the franchise company does not make this information available to you, it could be a warning side as well. What do they have to hide about their origins?
If you have performed all of recommended research and are still interested, you should then contact as many franchise owners as possible. The franchise owners can be found a number of ways including going to a local franchise, a simple internet search, or calling the franchisor and asking for a list of franchisees. Most franchisors will offer up a few people to call fairly willingly, but do not let these be the only people you contact. Sometimes franchisors will only give you the contact information of their few satisfied franchisees and leave out anyone who has made any complaints in the past. Find franchisees on your own as well. The more information, the better.
READ – Not only do you need to read all your research, you need to READ the Franchise Disclosure Document and EVERY SINGLE exhibit attached including the example franchise agreement, along with every single fee they charge and UNDERSTAND it all! Yes, it’s long and sometimes boring, but it is so very important! Would you sign a contract for a home without reading it thoroughly? What about for a car? A franchise is an investment and you want to make sure it’s a sound one. When in doubt, take it to an attorney that specializes in franchise law or contract law.
REFLECT – This is the most important step because if you have made it this far it is time to take a step back and take a good long look at this opportunity. You are surely excited to start this new stage in your life and financial future but you need to set that excitement aside for a bit in order to look at this from a business perspective. Take at least a week to really consider the following:
- Is this something I can do on my own?
- What will the royalty fees & other various fees really supply me and my potential company? Is it worth it? (Refer to Number 1)
- Does it sound “too good to be true” or “too easy?”
If you have any doubts hold off on entering the agreement. Talk it out with family, friends, and legal counsel. Repeat the 3 Rs again – you can never have enough information! Ultimately, you have to decide if you are ready to devote 100% to your new company and if so, may good luck & fortune find you!