Should You Buy A Franchise? Part 1

(The previous page of this article summarizes the advantages and disadvantages of buying a franchise.)

The Franchise Application

The first step in buying a franchise is to contact the franchisor operating a franchise that you’re interested in. Usually when you express an interest, the franchisor will expect you to complete a questionnaire or application form.

Do not be surprised that the franchisor’s questions include detailed questions about your finances. A franchisor will want to know about your personal assets, for example, because he or she wants to make sure you have a fall-back position to carry the business in case it runs into financial difficulty.

You will probably also be asked about your spouse’s financial situation. Once again, the franchisor wants to be sure that both of you are prepared to make the financial commitment necessary to start and run the franchise successfully.

You’re also sure to be asked questions about your experience, background, and even aspirations, questions designed to help the franchisor determine whether or not you’re the kind of person he or she feels will be able to run the business successfully and fit into the franchise model.

This second point is especially important to franchisors, because successful franchises depend on the uniform application of the system they have developed. They do not want people that they view as too independent, or people who are going to “gum up the works” because they can’t resist experimenting or applying their own ideas.

The Interview

If you “pass” the questionnaire or application test, the next step is usually a meeting with the franchisor that you can think of as a job interview. The franchisor will continue to explore your interest, commitment and suitability; you, on the other hand, will be trying to find out as much as possible about the franchise.

The Franchise Contract

If the franchisor decides you are a suitable franchisee, you will be offered a franchise contract that lays out the obligations of both parties. You should seek legal advice about the contract and go over it carefully. Like any other contract, some aspects of it may be open to negotiation. And like any other contract, if there are any promises made about the franchisor/franchisee relationship that are not in the franchise contract, get them written in.

Is Franchising For You?

Is there a franchise in your future? Buying a franchise is like buying any other kind of business in that you have to do your due diligence and investigate the franchise fully. However, if you are the right sort of person for a franchise operation and pick the right franchise, being a franchisee can indeed be the fast track to success.

What is a Franchise?

What is a franchise? A franchise is a right granted to an individual or group to market a company's goods or services within a certain territory or location. Some examples of today's popular franchises are McDonald's, Subway, Domino's Pizza, and the UPS Store.

There are many different types of franchises. Many people associate only fast food businesses with franchising. In fact, there are over 120 different types of franchise businesses available today, including automotive, cleaning & maintenance, health & fitness, financial services, and pet-related franchises, just to name a few.

How Franchising Works

If you are thinking about buying into a franchise system, it is important that you understand exactly how franchising works, what fees are involved, and what is expected of you from the franchise company.

An individual who purchases and runs a franchise is called a "franchisee." The franchisee purchases a franchise from the "franchisor." The franchisee must follow certain rules and guidelines already established by the franchisor, and in most cases the franchisee must pay an ongoing franchise royalty fee, as well as an up-front, one-time franchise fee to the franchisor. Franchising has become one of the most popular ways of doing business in today's marketplace. In most states you cannot drive three blocks without seeing a nationally recognized franchise company.

The History of Franchising

Franchising began back in the 1850's when Isaac Singer invented the sewing machine. In order to distribute his machines outside of his geographical area, and also provide training to customers, Singer began selling licenses to entrepreneurs in different parts of the country. In 1955 Ray Kroc took over a small chain of food franchises and built it into today's most successful fast food franchise in the world, now known as McDonald's. McDonald's currently has the most franchise units worldwide of any franchise system.

Today, franchising is helping thousands of individuals be their own boss and own and operate their own business. Franchising allows entrepreneurs to be in business for themselves, but not by themselves. There is usually a much higher likelihood of success when an individual opens a franchise as opposed to a mom and pop business, since a proven business formula is in place. The products, services, and business operations have already been established.

Advantages of Buying a Franchise

There are many advantages to buying a franchise. Some of these advantages are:

• Corporate image - The corporate image and brand awareness of the company is already established. Consumers are always more comfortable purchasing items from a familiar name or company they trust.
• Training - The franchisor usually provides extensive training and support to the franchise owner.
• Savings in time - Since the franchise company already has the business model in place you can focus on running a successful business.

There is a reason why franchising has been around for decades. It is a great way for individuals to own and operate their own business. If you are thinking about buying a franchise, do your homework, research the company, and you should consult with a franchise consultant or franchise attorney before making a final commitment.

McDonald's Franchise Review

In 1954, Ray Kroc mortgaged his home and invested his entire life savings to become the exclusive distributor of the Multimixer, a milk-shake maker. When the 52-year-old heard that the McDonald's hamburger stand in California was running eight Multimixers at a time, he paid them a visit and pitched the idea of opening up several restaurants to the owners, Dick and Mac McDonald, hoping to sell eight of his Multimixers to each one. They struck a different deal, and Ray Kroc opened the first McDonald’s restaurant in 1955. In 1965 McDonald's went public and today is the leading global foodservice retailer with more than 30,000 restaurants, located in more than 100 countries.

Background and Benefits

Who doesn’t know the menu by heart and every jingle ever written? The business model works, and with national and international advertising, McDonald’s Corporation manages to serve 27 million Americans everyday. But while owning a McDonald's restaurant is a tremendous opportunity, the company is seeking individuals with significant business experience who have successfully owned or managed multiple business units and have significant financial resources. McDonald's Corporation claims they are about growing business, making money, and having fun, and only the serious entrepreneur need apply.

How Much does a McDonald's Franchise Cost?

It takes a lot of potatoes to make these fries so come prepared. You will need a minimum of $300,000 in non-borrowed, personal resources to be considered for a franchise. Most Owner/Operators enter the System by purchasing an existing restaurant directly from McDonald’s or from a McDonald's Owner/Operator. A small number of new operators choose to purchase a new facility, but that requires an initial down payment of 40% as opposed to 25% for an existing restaurant. Intensive training addresses all aspects of operating a McDonald's restaurant. While McDonald’s does not offer financing, McDonald’s Owner/Operators have access to the company’s established lender relationships with some of the lowest lending rates in the industry.

What We Like

McDonald’s provides hands on training and the materials you need to become a success. With world-class training, world-class service, world-class support, and unsurpassed name recognition, McDonald’s is a sure winner for franchisees seeking a serious “all-in” franchising opportunity with guaranteed community presence and predictable profits. All this and they still serve a shake so thick you need a spoon.

Pros

• Special Incentive Programs -MinorityFran Participant
• Recession Proof Market - McDonald's serves more than 27 million individuals daily according to 2007 statistics.
• World Class Training - McDonald's is recognized as a premier franchising company around the world. Training is required prior to becoming an owner/operator.

Cons

• Cost - McDonald's does not provide financing or assistance other than the special incentives for minorities.
• No Absenteeism - McDonald's franchises are open only to individuals who are involved with the day-to-day operations of the restaurants-no absenteeism allowed.

The Process of Buying a Franchise

The process of buying a franchise is a very long process that should be pursued very carefully. There are many factors to consider, and many steps to take during the franchise-buying process. The following 5 stages will help you better understand the franchise buying process.

1. Choosing the Right Franchise

This is by far the most crucial step of the franchise-buying process. Deciding which franchise to buy is very difficult since there are thousands to choose from. You should choose a franchise you have interest in, or choose an industry in which you have past experience. Also, you must choose a franchise that is financially right for you. Remember, this will be a life-changing experience, so make sure you make the right choice.

2. Deciding What Franchise You Can Afford

You must remember to ask a lot of questions and find out exactly what your overall investment is. If a franchisor is advertising “$50,000 Initial Investment,” this does not mean that this amount is all you are required to invest. This $50,000 will probably represent your down payment and possibly a part of your franchise fee. There are many other costs involved, including the franchise fee, legal fees, build-out costs, supplies and working capital. Get an overall list of the items that make up the total investment and make sure it is something you feel comfortable with.

3. Steps to Take After You Choose Your Franchise

Once you have decided on a franchise that fits your lifestyle and budget, the next step is to investigate the company. When you buy a franchise you are not only buying a system but you are also at the beginning of a (hopefully) long-lasting relationship. You want to make sure it is the right relationship. Take your time and investigate the company thoroughly. Meet with all of the top executives in the company. Track down existing franchisees on your own and ask lots of questions.

4. Hiring a Franchise Attorney

Anyone who is considering buying a franchise should consult with a franchise attorney. This will help you to make sure you understand exactly what is expected of both you and the franchisor. You will do this by reviewing all of the franchise documents with your franchise attorney. It is imperative that you understand all of the terms and all of the documentation up front.

5. Preparing Your Business Plan

If you are borrowing money to buy your franchise you will need a business plan. Creating a business plan will not only help you receive financing, it will also become your guideline for success. Another reason you need to create a business plan when buying a franchise is to set your own personal goals. Any investment you make should always be researched, well thought-out, and follow a certain structure. Creating a business plan will keep you on the right track and help you focus on achieving your goals.

Buying a Franchise is Serious Business (Part 1)

Buying a franchise is a dream for many aspiring small-business owners.

There are conflicting opinions as to whether franchises tend to be more successful than independent small businesses, but this much is clear: Franchises are expensive to buy, carry the same risks as any startup business and require plenty of sweat equity to make them profitable.

"Buying a franchise is a serious, serious business, and one should contemplate the downside," says George Naddaff, chairman of the KnowFat! chain of restaurants, who created franchises including Boston Market and Sylvan Learning Centers. "The danger … is that every franchise is a startup."

Franchising allows entrepreneurs to take advantage of a proven business model and do business under a brand name that already enjoys market recognition and a loyal customer following.

As a franchise owner you will probably get support from your franchisor, which is one advantage over owning an independent business. This often includes access to reputable suppliers as well as operational and marketing support, including national campaigns and regionally tailored promotional materials. But just how much support your franchisor gives and what your investment costs will be are two of the many questions you should ask before buying a franchise.

Do Your Homework

Franchisors must provide prospective franchise owners with the company's uniform franchise offering circular. This thick document details important aspects of the business, such as the number of franchisees, financial statements and litigation history.

You should read the uniform franchise offering circular thoroughly. Naddaff advises calling franchise owners that are listed in the circular to ask about their store financials and their relationships with the franchisor.

Franchisors are only required to provide the circular, which will also outline the services you'll receive for the initial fees you'll pay to the company. Franchisors are not required to provide you with such services as advertising, training or access to financing. The services and relationship with the franchisor depends on each company, but many franchisors will provide these services and more, depending on their policies.

The circular will also tell you about the company's management, an important consideration when buying a franchise. Take a close look at the level of turnover, any recent management changes and the business styles and histories of the top executives.

Know Yourself

You should have solid credit and cash before buying a franchise so that you know how much you can pay for the initial operating costs and fees. You should also know the industries that interest you and why.

Make sure that your personality “is one that fits,” Naddaff says. "Everybody should play to their strengths."

Naddaff has seen many entrepreneurs in their early 40s who turn to franchising because they're tired of the corporate grind or having a boss. But owning a franchise doesn't completely eliminate supervision. Check the franchisor's rules carefully and determine whether you are comfortable with the creative and other restrictions on operating your franchise.

If you already own your own business, you may be an especially appealing candidate, as you likely already have the needed resources in place, including property, personnel and clientele, as well as know-how and a proven track record, which means you can quickly be up to speed and generating income.

However, some franchisors may be wary of getting involved with an experienced business owner who long ago forged opinions and about how best to operate – opinions that may not mesh and might even clash with how the franchisor prefers to do business.

Buying a Franchise is Serious Business (Part 2)

Know the Costs

There are a number of costs associated with acquiring and starting up a franchise.

1. Initial Investment Fees

You will probably need to pay initial fees to your franchisor. The median initial investment cost in 2006 was $25,150, according to the International Franchise Association. About 75 percent of businesses have set initial fees, while 25 percent have ranges for the fees, the association reports.

The National Federation of Businesses says most franchisors expect you to pay one-third of the fees in cash. The rest can be financed through the franchisor or on your own. Franchisors may help you get loans through their financial institutions.

The fee allows you to use the brand name, and often includes training, marketing and other services. The franchisor will determine what exactly the fees cover.

2. Startup Costs

You may still need to buy or lease a property, which is usually the largest cost for franchises, purchase equipment and hire staff. These are traditional startup costs for any small business and can also apply to franchises.

3. Royalty Fees

You'll need to continue paying a percentage of your income to your franchisor for the right to use the brand. This fee can range from 4 percent to 12 percent, Naddaff says, and can also be used by the company to help your store with marketing and promotions or to have corporate site visits.

On its Web guide for buying a franchise, the Federal Trade Commission notes that "even if the franchisor fails to provide promised support services, you still may have to pay royalties for the duration of your franchise agreement." Before buying a franchise, be sure to ask franchise owners about the services and support they've received from their royalty fees.

4. Additional Costs

You'll be responsible for ongoing operating costs such as payroll. You also may have to pay for your own advertising, depending on the services your franchisor bundles into the agreement.

Research the Market

Franchises shouldn't be too young, nor should they be too well-established. If a franchise is either, you may be heading into a risky investment.

"You can be too soon on something or too late," Naddaff warns. "So I try to find things on the cutting edge."

Think American coffeehouses are booming? So do other companies, which is why the market has already been tapped, Naddaff says. He sees more growth in restaurants offering health and ethnic foods.

Find out what's missing in your community and how similar businesses are performing in comparable communities.

Franchising Your Business

Franchising your business can be a great way to grow your business. When you franchise your business, you basically sell your product, name and way of doing things to others (franchisees) who pay you a fee for the chance to duplicate your success.

But franchising your business takes a fair bit of preparation and is only a viable option for those businesses that are “ready” to franchise. Is franchising your business for you? Ask yourself these questions to see if your business is ready to become a franchise.

1. Is it possible for others to duplicate your success?

Many successful businesses are successful because of the business owner, not the business’s products or services. He or she has the charisma and/or salesmanship coupled with a particular skill set that draws customers and brings them back. If your success is dependent on your own flair and skills, franchising your business is not for you.

2. What’s your unique selling proposition?

In other words, why would people want to become franchisees of your business rather than just doing what you did themselves? There has to be something unique about your product or service or something about the process for creating your goods that’s difficult to duplicate for franchising your business to be profitable. That doesn’t mean that your product or service has to be exotic or ground-breaking. One successful local franchise refills ink cartridges; another hauls junk. It’s the way the process is done or the service is delivered that makes it franchise-worthy.

3. Do you have a system that can be duplicated and monitored?

When you franchise your business, it’s not actually your product or service that you’re selling to others; it’s your system. Franchisees aren’t just buying the right to sell your product or service, but your manual of operations that will allow them to do things exactly as they’ll be done in every other location of your franchise.

The most common kind of franchise is the Turnkey operation. The franchisee expects to be able to walk into the business and run it successfully, as the franchisor provides everything from initial inventory and staff training through accounting and promotion. In other words, when franchising your business, you are providing a blueprint of the operations, training, marketing, financial and legal aspects of the company. Franchising your business is not for start-ups or businesses that haven’t worked out the kinks.

4. Do you have more than one location now?

Deciding to franchise your business when you have only one location is dangerous. Until you’ve “transplanted” your successful business to another location at least once, you won’t know how much of your business’s success is dependent on local conditions. Opening another location before franchising your business will also give you the chance to test the system you hope to franchise and revise your franchising plan as necessary.

5. Do you have the money you need to franchise?

Franchising your business isn’t cheap. Developing your franchise concept will cost you both time and money. Besides the obvious costs, such as getting the expert advice of lawyers, accountants, and franchise consultants to help you put your franchise package together, you’ll also need to market your franchise opportunity. And all of these costs will be incurred before you’ll see any franchise fees roll in from your new franchisees. Financing your franchise expansion will definitely be a important part of your plan to franchise your business.

Is franchising your business for you? Perhaps the best indication of all is whether or not you’ve already had franchise inquiries. Franchising is a very popular choice for people who want to start businesses – especially if the start up requirements for franchisees are $25,000 or less.

If you’ve answered “yes” to the first four questions on this “are you ready to franchise your business” list, don’t let a lack of funds deter you. If you already have an established, successful business and a developed plan for franchising your business, you’ll find traditional financing easy to get. Traditional lenders, just like you, recognize what a profitable investment franchising your business can be.

How Much Does a Franchise Cost?

How Much Does a Franchise Cost? The answer to this question is not very simple. Every franchise has its own financial requirements, so the costs to start a franchise are different for every franchise company. In most cases, you will be required to pay a franchise fee, all build-out costs for your location (including furniture, fixtures and equipment), professional fees, contractor fees, signage and inventory. The franchisor does not contribute to any of these costs.

Here is a list of 6 common costs to open a franchise:

1. Franchise Fee

Every franchise company will require you to pay an initial franchise fee. Most franchise fees are between $20,000 and $50,000. In some cases, you may see franchise fees less than $20,000. These franchises with lower franchise fees are usually home-based or mobile franchises.

The franchise fee usually covers the cost of training, support and site selection. The items or benefits that are included in a franchise fee are different for every company. In some cases, the franchise fee is just an upfront licensing fee for the rights to use the franchise name. I strongly suggest you investigate exactly what you are getting in return for the franchise fee.

2. Legal Fees

Anyone considering buying a franchise should consult with a franchise attorney. Your franchise attorney will help you review the UFOC (Uniform Franchise Offering Circular) and the franchise agreement. There is no one set fee to review these documents. It is safe to say that you should budget anywhere between $1,500 and $5,000 to pay to a franchise attorney. The amount of time you spend with your attorney will determine the overall price.

3. Build-Out Costs

It is almost impossible to estimate a price for build-out costs since each and every franchise is different. Once you have decided on a franchise and a specific location you will be giving an estimate from the franchisor of your overall build-out costs. This will include all furniture, fixtures, equipment and signage.

Of course if you decide to buy a home-based franchise there are no build-out costs involved. You may have some other costs for software applications or computers but sometimes these items are included in your franchise fee.

4. Inventory

If you are buying a retail franchise or any other franchise that you are selling a specific product you must stock up on inventory. Once again, every franchise is different and has different requirements. You may be required to buy between $20,000 and $150,000 worth of inventory.

5. Supplies

All new businesses require you to have the proper supplies to run your business. Whether it is a food franchise required to offer plastic utensils to its customers or a service-based franchise that is in need of office supplies, every franchise needs the proper supplies in order to do business. Your franchisor should be able to give you an accurate estimate of what is needed before you open your franchise.

6. Working Capital

Working capital is in the amount of day-by-day cash available to a business. Depending on the type of business, it is important that the working capital cover a particular length of time, ranging from a few months to possibly two to three years until the business is in full swing. The franchisor typically provides an estimate of the amount that is needed.

Should I Create a Business Plan for My Franchise?

Creating a business plan will not only help you receive financing, it will also become your guideline for success. Every business should have a business plan. I have seen many small business owners write their business plans and then file them away. They end up never looking at them again. You should think of your business plan as a roadmap to success.

Why Do I Need a Business Plan?

Any small business owner or potential franchisee should create a business plan for their business or franchise. One of the main reasons you will need to write a business plan is to obtain financing from a bank or any other lender. A business plan will help your lender understand exactly what he or she is investing in. It also defines the reasons you need financing, exactly how you are going to spend the money and the terms of payment.

Another reason you need to create a business plan when buying a franchise is to set your own personal goals. Any investment you make should always be researched, well thought out and follow a certain structure. Creating a business plan will keep you on the right track and help you focus on achieving your goals.

Always Update Your Business Plan

Don't let your business plan collect dust! As your business changes, so should your business plan. Your business plan is your roadmap to success and should be updated as you learn more about your business.

Your Roadmap to Success

You should treat your business plan as much more than just a required document from a bank. Your business plan should plot out all of your financial goals and projections. As you need help with your business, you should refer to your business plan.

All business plans should have a mission statement. Your mission statement should be a very strong motivational statement that will motivate your employees and managers. Post a copy of your mission statement for all to see!

Help Writing Your Business Plan

Whether you are writing your plan from scratch, following an established format, or using a computer-generated template, you should do research and get input from your franchisor and other professionals.

Most franchisors should be able to assist you with information you need to write your business plan. There is certain information a franchisor is not allowed to share with you, such as earnings claims. In addition, the franchisor may refuse to review your business plan. If they approve it, they may be violating federal and state requirements that they must follow.

If you plan on hiring a franchise attorney, he or she can add valuable input. You can also ask your accountant for some advice, since he or she usually has experience obtaining financing for their clients.

The Challenge

Creating a business plan may sound very challenging and time-consuming. I am not going to lie: it is very challenging and very time-consuming, but it will be a very rewarding experience.

Should I Hire a Franchise Attorney?

In becoming a franchisee, you are about to invest a large portion of your valuable time and money as a new business owner. Therefore, you should make sure that you are doing everything possible to fully understand the deal before you invest. In order to do this successfully, it is highly recommended that you hire an attorney specializing in franchise law.

Why Hire a Franchise Attorney?

As you make such a huge commitment, it is imperative that you understand all of the terms in all of the documentation up front. Your franchise attorney can be very valuable in this endeavor, as he or she is an expert in that field. You should not hire a general attorney with no franchising experience because that attorney may not be aware of all the specifics involved.

Your franchise attorney may assist you in your comprehension of the first document that you receive from the franchisor, the Uniform Franchise Offering Circular (UFOC) or soon to be called Franchise Disclosure Document (FDD). This very lengthy and detailed document will highlight a variety of information about the franchise including any lawsuits or bankruptcies it has experienced.

As you go further along into the deal, you will receive a franchise agreement for your review. The franchise attorney will help you decipher the agreement, which explains the rights and obligations of both parties. The agreement, as written by the franchisor's attorney, may appear a bit slanted on the side of the franchisor. Therefore, your attorney can advise you regarding the fairness of the agreement as compared to others. He or she can possibly negotiate better terms on your behalf. The attorney probably possesses the experience to know what terms the franchisor may be likely to adjust.

Furthermore, the franchise attorney can be quite effective in assisting you with other issues. He or she can help you create your business entity, such as a sole proprietorship or partnership. The attorney can review and negotiate leases as well as offer advice on other legal business matters.

How to Hire a Franchise Attorney

The best way to begin looking for a franchise attorney is to ask around. If you know another franchisee, you may want to inquire as to who he or she hired. Also, asking other business professionals such as accountants or general lawyers may help you find a qualified professional. Another option is to contact the American Bar Association for a referral.

It is best to obtain at least two referrals so that you can compare attorneys. Find out about their experiences and track records with other franchise clients. You will also want to inquire about their fee schedule.

Due Diligence

Unfortunately you might come across some franchises that may not be legitimate. As you perform your due diligence in thoroughly investigating an opportunity with the assistance of your franchise attorney, you are much more likely to enjoy success as a franchisee.

What Kind of Franchise is Right for Me?

Once you have decided that buying a franchise is the way to go, the next step is choosing what kind of franchise you should invest your money in. There are thousands of franchise opportunities to choose from. With over a hundred different franchise categories available, finding the right franchise can be a very difficult task.

You will read many different articles that will suggest which are the best franchises to buy. You may even consult with a franchise broker or franchise consultant who will claim they have the perfect franchise for you. Although these articles are very informative and your local franchise consultant is very knowledgeable, no one will know what kind of franchise is right for you. The only person that will know what kind of franchise is right for you is you!

Choose an Industry You Are Interested In

Many people I know hate their jobs, and will always hate their jobs. One of the greatest advantages you have when buying a franchise is the freedom to choose an industry that you are interested in. The very first thing you should do when you are investigating buying a franchise is narrow down your choices to just one or two industries. These industries should be industries that you are interested in or have prior experience in.

I cannot emphasize this enough. If you have no experience in pet grooming and do not like animals, do not buy a pet-related franchise just because you read an article about the enormous growth of the pet grooming industry. One of the biggest reasons a franchisee will fail is because they choose an industry that they have no interest in.

Popularity Doesn't Always Equal Profitability

Another big mistake people make when deciding what kind of franchise to buy is choosing a franchise based on popularity. Just because you see a Quiznos franchise in every town doesn't mean a Quiznos franchise is right for you. If you have decided to buy a food franchise, do not choose one over the other because one is more popular or one is airing more TV commercials. Always remember: popularity does not always equal profitability.

In the past, when you were looking for a job, I am sure you had certain salary requirements. Think about buying a franchise the same way and always ask yourself, "How much money will I make?" Don't get caught up with popular trends or popular concepts, and always keep in mind your main objective, which is to make money with your new franchise investment.

Once You Have Made the Final Decision

Once you have decided exactly what franchise fits you best, your job has just begun. You will need to meet with the franchisor, ask lots of questions and do your homework. Do not let any salesman rush you or pressure you. Always remember: you are in the driver's seat and can walk away at any time.

Steps to Take After You Choose Your Franchise

Once you have chosen which franchise is right for you, your job has just started. The process of investigating and buying a franchise should be done very carefully.

Do Your Homework

Research the history of the franchise and the franchise company via the Internet. Try searching for press releases on the company. Even though a franchise may have a popular name, there may be some issues that you may not be informed about. If the company has been in existence for five years or less, it is wise to pay special attention to the pace of growth and its franchisees' geographical locations.

Find out how many franchises were opened during the last several years as well as how many, if any, have closed. Determine if the franchise has been growing at a reasonable pace so that you can get a good idea of the stability of the operation. Also, talk to other franchisees, including former ones, to find out how happy they have been with the franchisor.

Documentation

It is important to be diligent about reading and understanding all documents provided by the franchisor. It is highly recommended that a potential franchisee obtain the services of experts, such as a franchise attorney and an experienced accountant. The attorney can review and explain the Uniform Franchise Offering Circular (UFOC), as well as the franchising agreement. The accountant offers the expertise of thoroughly analyzing the financial stability of the company.

Also, be aware of all fees that are involved. You are likely to encounter an initial franchise fee, royalty fees, and sometimes mandatory advertising contributions. These costs should be compared to determine if they are in line with other similar franchising opportunities. Your franchise attorney or accountant can help you decide if the fees are reasonable.

Most importantly, make sure you include all terms and conditions in writing. You don't want to run the risk of any misunderstandings between you and the franchisor. If your attorney negotiates any revisions for you, confirm that your agreement is updated accordingly.

In Summary

Overall, if you take your time and do thorough research before making your investment, you will ensure you are making the right decision.

Don Daszkowski