How do you evaluate a franchisee?
What to consider when evaluating a franchise opportunityThe market. Has a defined market been determined? ... Company history. ... Financial statements. ... Level of investment. ... Training and support. ... Territory. ... Royalties. ... Restrictions.More items...
How do you know if a franchise is legit?
6 Signs to Look for to Know It's a Franchise ScamUrgency and High-Pressure Tactics. ... No Experience in the Business Being Sold. ... Vague and Confusing Franchise Agreement. ... Demanding a Cash Deposit. ... Promise of Rapid Huge Profits. ... Unclear What Product or Service is Being Sold.
How are franchises audited?
To test whether revenue has been accurately reported, auditors trace transactions from the point-of-sale to: The franchisee's financial records, Revenue reported to the franchisor, and. Tax returns submitted to state and federal governments.
What is franchise Compliance?
Franchise compliance is the process and practice of selling franchises in compliance with federal and state franchise laws, rules and regulations. The centerpiece of all franchise sales compliance practices involves the proper issuance, registration, and disclosure of a Franchise Disclosure Document (FDD).
Can franchise owners get in trouble?
Your franchise agreement can also be terminated if you fail to pay royalty fees. If you don't pay these fees on time or at all, the franchisor has the right to terminate the franchise agreement. You increase your chances of being terminated if you fail to pay multiple times.
What happens if you buy a franchise and it fails?
Often the best answer to a franchise that is not succeeding is for the franchisee to sell the business to a third party who becomes the new franchisee for that territory. This allows the failing franchisee to terminate its obligations under the franchise agreement and under any lease.
Can a franchisor audit a franchisee?
Why audit your franchisees' compliance? For franchisors, a franchisee compliance audit program is a must to ensure that your network is delivering the right products and services in line with your brand standards and franchise system.
What are the six steps in investigating a franchise?
How to Investigate a FranchiseStep 1 – General Information. ... Step 2 – The Franchise Disclosure Document. ... Step 3 – Franchisee Calls and Visits. ... Step 4 – Review the System Documentation. ... Step 5 – Meet the Franchisor. ... Step 6 – Make a Decision.
How do you due diligence a franchise?
Franchise Due Diligence: 10 StepsTalk to Current Franchisees. ... Talk to Former Franchisees. ... Visit the Franchisor's Headquarters or Company-Owned Location. ... Review the Franchisor's Franchise Agreement and FDD. ... Compare the Franchise Agreement and FDD to Others. ... Ask Questions. ... Research Online.More items...•
What are the legal obligations of a franchise?
Your Ongoing Obligations To act in good faith. To comply with the franchise business model as per the contract documentation. To meet your financial obligations. To run your business lawfully.
What are three 3 points that should be considered prior to buying a franchise?
What Should I Consider Before Buying a Franchise?The type of experience required in the franchised business.The hours and personal commitment necessary to run the business.The track record of the franchisor, and the business experience of its officers and directors.How other franchisees in the same system are doing.More items...
What are the five principles of franchising?
Franchising Fundamentals – Basic principles to knowIt's a methodology, not an industry. Franchising is a methodology. ... The franchisor owns the brand. ... Franchisees are licensees. ... Franchisees must qualify. ... Franchisors disclose information upfront. ... It's a three-way proposition.
Is buying a franchise safe?
If you're a fledgling entrepreneur or a seasoned business person wanting to diversify your holdings, you've probably wondered, “Are franchises a good investment?” The simple answer is yes, especially if a great opportunity presents itself. There is an obvious appeal to starting a business via buying a franchise.
What is a true franchise?
A franchise (or franchising) is a method of distributing products or services involving a franchisor, who establishes the brand's trademark or trade name and a business system, and a franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor's name and system.
How can you find out who a franchise owner is?
The best way to find out who owns one specific franchise is usually to just ask. You can visit the business in person or call, and in most cases, you can get a name immediately. If the manager is unwilling to tell you the name of the owner, you can try contacting the franchising company's head office.
How can speaking to franchisees be helpful during the validation process?
In the process of speaking with current (and even past) franchisees in a particular system, you will be able to determine overall franchisee satisfaction and financial performance of a franchise.
General Questions to Ask Franchisees
When speaking with other franchisees you of course want to get feedback about their experience owning the business but remember, your ultimate goal is to determine if this is the right opportunity FOR YOU, not for them. No business is right for everyone so never forget that one man’s trash is another man’s treasure.
Financial Questions to Ask
Remember, if you are validating properly you will be speaking with franchisees in all phases of their business ranging from those who are wildly successful to those that are new and still grinding it out to break even. Also keep in mind when talking numbers that people structure their businesses in different ways.
Filtering Your Responses
When you validate, keep in mind you will not receive 100% satisfaction from every franchisee you speak with. No franchisor has a 100% satisfaction rate and all business owners have bad days at the office. You will too! While it is easy to do, resist getting too hung up on negative or less than satisfactory responses.
Reading Between The Lines
Probably the most over-looked concept in validating is striving to identify with the different people with whom you speak. As you speak with franchisees, constantly ask yourself, “am I like this person”, “do we share similar values”, “do we have similar strengths or weaknesses”.
Important questions to ask before buying a franchise
You’ve decided to look at business ownership through franchising. With the help of a franchise consultant, or perhaps on your own, you’ve decided on two or three franchises that are a good “fit” for you. Now what??
Working through the franchise validation process
Demographics: Talk to franchisees who are in similar demographics to where you would open your business. If you are planning on opening in a suburb of Indianapolis, for example, talking to a franchisee in downtown New York City probably won’t provide you with comparative information due to population density among other things.
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Jim Gleason is President of franbizconsultants.com and a member of the International Franchise Professionals Group. He has more than 35 years combined experience in the corporate, counseling, and consulting worlds. Jim is a Certified Business Coach (CBC), a Certified Franchise Consultant (CFC), and a Certified Main Street Business Broker (CMSBB).
