 Advice on success as an entrepreneur and starting a franchise.
Franchising became popular in the 1950s with the wild success of McDonald's. Today, there are countless franchising opportunities, and many potential entrepreneurs view them as an easy way to get into business.
There are advantages to buying a franchise. In theory, you are buying the blueprints for a business with name recognition that has already proven it can work. You are also purchasing the brainpower of the franchising company, which should have resources to help you with day-to-day business details.
However, purchasing a franchise isn't risk-free, and not all franchises are created equal. First, identify several franchisors in your target industry and do some investigative work. Find out if existing franchisees are happy, and if the franchisor keeps its promises. Then, once you've decided on a particular franchise, ask to see the Offering Circular. This is a document required by the Federal Trade Commission, which regulates franchises.
By law, the franchisor must give this to you at the earliest of your first in-person meeting or 10 working days before you sign a contract or pay them money. This document may include:
• a description of the business and the franchises being offered
• litigation history of the franchisor and people connected with it
• any history of bankruptcy
• initial fees required from the franchisee
• an estimate of the initial investment required
• a listing of any other fees
• representations regarding earnings capability
• financial statements
Once you've received the Offering Circular you must do your due diligence as thoroughly as if you were buying a business. Do a background check on the company. Make sure your attorney, accountant and banker reviews the Offering Circular.
Read carefully the obligations of the franchisee. For example, if you are considering opening an ice cream store franchise as an investment, and the franchisor thinks it's important that the owner actually be a full-time manager or operator, you need to know that going into the deal.
The biggest reason franchisees fail is because they don't take time to do their homework. Safeguard your investment, and take time to evaluate the pros and cons of the deal.
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Susan Wilson Solovic is an attorney, author and speaker. A former journalist, she has appeared frequently on Business Beat, Radio America, CNNfn and Bloomberg News. Only registered users can write comments.
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