Things You'll Need:
- 1. Research - Begin with www.ftc.gov. You can order the FREE publication called "A Consumer Guide to Buying a Franchise". It's extremely informative. There are books written, especially by Franchise
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Step 1
You cannot do enough research before plunking down a red cent to the Prospective Franchisor. Both State and Local Government agency websites are there to assist in your research. Franchises will only state (and exaggerate) the good points and make claims such as their high ranking in the industry and use high pressure tactics and claims to convince you to purchase their Franchise. If they do not back their claims up in writing then that is your first red flag not to buy. The claims are many, such as your "total" cost to buy and run the Franchise until you not only break even, but finally make money, their experience, support, restrictions and Franchise owner failure are key, and they will try to convince you that failure is not an option. If you don't get these in writing, then when you the new owner find that they are not holding up all they promised, you have no leg to stand on, as they will say that they never made such claims and promises. They may tell you how much you can earn by investing in their Franchise and how well the other Franchises are performing, however, they are required by the FTC to make those claims in writing. You will find that the initial cost, whatever it is, is only the beginning. You need either a large sum in your savings or another income in order to pay your bills and cover your overhead if necessary, until your business becomes a viable source of income. That is where the business plan comes in. It gives you a real picture of how much you will need to cover cost and overhead for the years ahead and how long it should take you to break even, and finally to make a profit. This doesn't happen over night and your biggest competitor can be the Internet, which has little overhead and can undercut your pricing. Research also includes any and all prior or current litigation with that Franchise, which may involve, misconduct, misrepresentation, and unfair practices. Many claims against them can be a strong indicator that they are not living up to their agreement. Be extremely apprehensive of internal litigation brought upon an executive of the Franchise, but intentionally left out of the UFOC disclosure. They may even eradicate that executive's name from the UFOC all together. This information is key to the integrity of that Franchise. Be especially sure to call former and present Franchise owners to inquire about their experience with this Franchise. Ask all pros and cons or hurdles they may have experienced.
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Step 2
Attain a very reputable, if not prominent Franchise Attorney to review the UFOC document. They can in a heartbeat advise you as to whether this is a good or bad investment and it can save you grief before you start. It is worth the money to spend on Great Attorney, versus a Non-Franchise Attorney or a Local Attorney you may know or know of through an acquaintance. An inexperienced or mediocre Attorney may not advise you not to buy into the business, and would be more than happy to make a quick buck setting up and handling your business start up legal paperwork with the Franchise and Landlord leasing agreement, which also needs an experience eye and a good negotiator. The Franchise may not help at all in this area, and it may really end up costing you in the long run. The Franchise purchase and royalties, Commercial loans and Leasing agreements, as well as inventory vendor purchases are 100% backed by your personal assets such as your home as a new business owner, and if your business fails, are in line if you must fine for Bankruptcy for protection. A good attorney is necessary for this reason, and most of these contracts are very long and extremely confusing legal documents which, in essence side in favor of the bank, landlord and vendor. If the business takes a turn for the worst and the ship is going down, they will all be there to recon with you. When a bank grants you a commercial loan, they become a lien holder on your homeowner's policy, and if they want more money than they receive as a result of a bankruptcy, they can legally ask for more, such as the equity in your home. So, again, spend the money on a great franchise attorney!
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Step 3
Be sure that the Franchise you wish to purchase is either something you have experience with, or, receive extensive training for (which is another sticking point with the Franchisor). They should provide adequate training about the product you are selling, industry you are buying into, and how to run that business and profit, and how well they assist you personally in ramping up, opening and running the business. Your length of training in this area is key and should be more than just a week or two, and should involve extensive training support. You should also employ individuals to cover the areas, which you are not so well versed or weak in, to be able to assist you to gain more knowledge in order to correctly run the business from the start. These people would be salespersons or consultants who have well rounded industry experience, so they can identify and help correct problems early. A great Accountant can really take the pressure off when it comes to bookkeeping, payroll and taxes. Buying a Franchise is a huge step, which can be extremely gratifying or disastrous. It depends on your initial investigative footwork to determine the direction. Good Luck!
