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Wednesday, April 27, 2011

Evaluating a Franchise

Peter King
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When you’re considering a franchise to buy, you want to review everything about the franchisor, the contract, the market and, most of all, yourself. This will ensure that you are making the right decision. The U.S. Commerce Department has created a checklist that has helped thousands of entrepreneurs in the same position.


The Franchise


1.)   Did you have your attorney review and approve the franchise agreement line for line?

2.)   Are there any steps that the franchise requires of you that your attorney deems unwise or illegal in your state, county or city?

3.)   Are you given by the franchisor an exclusive territory for the length of the franchise or can they sell a second or third franchise within it?

4.)   In any way is the franchisor connected with any other franchise company that handles similar merchandise or services?

a.     If the answer to the last question is “Yes,” what is your protection against this additional franchisor?

5.)   If for any reason you decide to do so, what circumstances allow you to terminate the franchise agreement, and at what cost?

6.)   Will you be compensated for your good will if you sell your franchise?


The Franchisor


1.)   How long has the franchisor been in operation?

2.)   Does the franchisor have a reputation for honesty and fair business practices among local firms holding its franchise?

3.)   Has the franchisor supplied you with certified figures describing exact net profits of one or more going franchises, which you verified personally with the noted franchisee(s)?

4.)   Will the franchisor assist you with management and employee training, marketing, financing and inventory?

5.)   Will the franchisor assist you in finding a good location for your new franchise?

6.)   Does the franchisor have adequate financing to carry out its stated plans of expansion and financial assistance?

7.)   Is the franchisor a corporation with experienced management personnel or a one-person company?

8.)   What can the franchisor do for you exactly that you cannot do yourself?

9.)   Have you been evaluated thoroughly by the franchisor to assure that you have the necessary managerial, financial and business abilities to successfully operate one of its own franchises at a profit?

10.) Has the franchisor complied with any state laws regulating the sale of franchises?


You, the Franchisee


1.)   How much equity capital is required to buy and operate the franchise until your income equals your expenses? Where will you be obtaining the capital?

2.)   Are you prepared to give up independence of action in order to secure the advantages offered by the franchise?

3.)   Do you really believe you have the innate ability, training and experience to work effectively, efficiently and profitably with the franchisor, your employees and customers?


The Marketplace


1.)   Have you researched the products or services that you propose to sell under the franchise to determine if there is a market in your territory?

2.)   Will the population in your territory increase, remain static or decrease over the next 5 years?

3.)   Will the product or service you are considering to sell be in greater, the same or less demand 5 years from now?

4.)   What competition already exists in your territory for the product or service you are looking at selling?



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Response to: Evaluating a Franchise
Chella says
John Thanks for your response. If you are jniiong a franchise there are structures and disciplines that require adhering to.When looking at what best suits you ask yourself the question what do I need and what do I want out of a group. If you require structure, marketing and support, with strong disciplines then you should look at a franchise group. If you just want rebates and a short term fix, it probably does not fit. Do not fall into the trap of easy in easy out. There is no such thing. The cost of changing brands is expensive. Successful franchises such McDonalds, Subways Bakers Delight will tell you that one store closing or re-branding has greater implications than 10 new stores opening. The cost of termination will only enter into the equation if both parties have a massive breakdown in communication. Our franchise is certainly not structured for a quick in and out store or franchisee. It has never happened, however to answer your question if a franchisee does break t

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