What Do You Need To Know About Buying A Franchise?
Deal Points: Determine the basic terms of the franchise sale.
The Market: How will this franchise perform in today’s market? (Is it in a suitable, well-established market or a new one?)
Financial Basics: Gather the basics such as profits, gross, expenses, etc. You will have to speak with other franchisees to obtain this information unless the franchisor provides earnings claims (i.e., its selected track history) shown in the FDD.
Nature of Franchisor: Is the franchisor a stable, well-run and fair organization or is it tight-lipped, cool and strictly business company?
Future Support by Franchisor: What do the existing franchisees tell you?
Key FDD Legal Issues
There are too many legal issues to discuss all of them at this time.
Here are some samples:
- Encroachment (e.g., the franchisor expands its business and intrudes on your territory)
- How frequently must you remodel (or replace equipment) and over what period?
- The number of default notices before termination of your franchise
The Buying Process
Think About These Things Before They Occur:
- Time periods to fulfill your obligations after buying
- Who does what, when and how in order to open
- How much money will you need to do each task?
- What other resources will you need and when in order to open (e.g., architect, CPA, attorney, lender, etc.)?
Stages of the Buying Process:
- Searching for franchises
- Finding help to determine what to buy (e.g., read books, talk to franchisees, counselors, etc.)
- Contact with franchisor
- Meeting or telephone conference call with franchisor for more meaningful discussion
- You are provided with the FDD.
- Work on due diligence
- Start loan process
- Discovery Day
- Sign the agreement, guarantee, etc.
- Search for lease site
- Sign lease
- Build out leased facility
- Grand opening