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Best Ways to Research Before Buying a Franchise

By: Bill Bradley


Best Ways to Research Before Buying a Franchise

Buying a franchise is a big decision. Since this decision will be one of the largest you will most likely ever make, you will want to consider the fact that a successful franchise, with a proven record of success, could serve as a shortcut towards creating the successful business you desire. Buying a franchise is like investing in a top performing stock that has continuously held its value for decades.

When you buy a franchise, you’ll want to have a plan. It starts with commitment, then budget and lastly you must have the support from your family. Sit down at the kitchen table and have a family meeting to discuss the changes that will take place if all of you commit to starting your own business. Buying a new business means you will be putting in a lot of hours. You may not have time for children’s sporting events or even vacations. In the beginning, the business will have to come first.

If you can all agree to the sacrifices that will take place, you need to do everything you can to make a smart choice in franchising. Know who you are. Dig deep to understand the type of work that brings out the best in you. If you choose a franchise and learn later you’re not passionate about going to work every day, you have a problem.

Researching you, is just as important as due diligence on the franchise opportunity. Get up close and personal with you and be sure you know what you’re getting into.

One of the single most important aspects of any venture is preparing and gathering information. At this stage, you’ve completed your personal evaluation and have weighed your franchise options. Whether you have decided to validate service based franchises or cheap franchises or a high-value food franchise, you’ll want to compare business models and look for patterns of success over time. Bottom line, once you know what you want, you need to compare all your options and begin a deep dive into each franchise system you want to validate. Below are the best ways to research before buying a franchise.

1. The Franchise Disclosure Document (FDD)

Initially, you will have a series of communications with each franchise system you’re talking to. They will be aggressive in their demands of your time so be prepared. They are eager to learn if you’re a good fit for their franchise business. If you are, they are essentially recruiting you and are not concerned with the other franchise opportunities you’re considering.

Take your time and stick to the schedule you and your family have agreed upon. Don’t let them make you go faster than you’re willing to go. Do not let them pressure you into making a decision.

If you’re interested in moving forward with a franchise, ask to receive the Franchise Disclosure Document. This is a one-hundred plus page document that serves as the basis for the Franchise Agreement.

If you’re really serious about this franchise opportunity, hire a franchise attorney or a CPA to assist with your validation of this franchise. They will start with the FDD and consult you on the pros and cons of the investment.

2. Know the Success Rate

Item 19 of the FDD is all about Financial Information. Here you will find franchisee performance data over time. Not all franchise systems choose to share historical financial performance but if they do, take advantage of it.

The best source of information regarding franchisee success will come from current franchisees. The FDD will provide you a list of current franchisees including contact information. Contact franchise owners with similar demographics to where you live and contact all franchise owners that will have territories adjacent to where you want to operate your business.

3. Visit Existing Franchises

If applicable, another place to start is visiting other existing franchises to see how they operate. Try to arrange a meeting with the owners. Get their feedback on if they think the franchise is a good opportunity. It is in your best interest to visit as many franchises as possible. This will help you gather a wealth of information before buying a franchise.

After you have taken these steps you will have gathered information on a specific franchise. This will generate some new questions that you may want to ask the franchisor. You may want to look elsewhere if you feel that you are not being given straight answers.

4. Discovery Day

If you’re invited to Discovery Day know that the franchisor will want to close the sale on that day. Discovery Day is held at franchise headquarters and is designed to convince you to move forward with their opportunity.

Don’t get overly enthusiastic in this process. In fact, you may find yourself attending more than one Discovery Day for other franchises as well. Your goal is to get to know the people you would be working with on a daily basis. Do you like them? Are they supportive of your franchise goals? Is what they’re saying true to the Franchise Disclosure Document?

Everyone there will be part of your team. So, make sure the management team and the operations team and the people involved with your training and ongoing support are people you can work with for the next ten years.

The main thing to keep in mind here is to keep your brain on and think. With the larger brand names, buying a franchise can be seductive. Remember to research. Carefully think through every aspect of the buying process. Use these research ideas to get you going in the right direction.

Published: October 3, 2017

Source: America's Best Franchises

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Bill Bradley

Bill Bradley

Bill Bradley is founding member and CEO of America’s Best Franchises, LLC.  Bill founded three financial services firms, Ocean Shores Ventures, Denali International and William Bradley Enterprises. In addition, to launching America’s Best Franchises in 2005, Bill orchestrated approximately 20 private equity transactions in excess of $31 million, and launched five specific purpose private equity partnerships.

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