How to Research a Franchise Opportunity that’s Best for You
As a potential franchisee, there is a great deal for you to gain…or lose, from your franchise investment. So, your franchise research is critical to making a selection decision that’s best for you and your success. It’s best if you spend time at the beginning of the process to avoid any unforeseen surprises after you’ve made your investment.
No doubt, research is a time-consuming step, but it’s also the most important step. Research the franchise like you would any other large investment that you may have made in the past.
If you have made the decision that you would like to invest in a franchise brand, you have likely:
- Determined that your personality would be a great fit for a franchising
- Identified franchise categories that are of interest to you
- Selected the brands that best represent the category or categories that you have chosen.
You may want to take a step back if you haven’t already completed these steps before you proceed with your research. However, if you have completed these steps, now it’s time to carefully research the specific franchise (or franchises) that you may want to join.
Three Key Activities to Start your Franchise Research:
1. Start with the Franchise Disclosure Document
Obtain and review the Franchise Disclosure Document (FDD). While reading the FDD may seem demanding, you will learn a great deal about the franchisor’s history and key leadership team. You’ll also find information such as:
- The history of the franchisor and if they have sued or faced bankruptcy
- How much you will have to pay for fees
- The type of support you can expect as a franchisee (including training, territory, franchise renewal, etc)
- Your obligations as a franchisee
- Financial statements and other fiscal performance
- A list of current and former franchisees, and their contact information.
Reading this document will provide you with a great deal of information to assess which franchisor will be the best fit for you. If you’re considering a number of franchise brands, you can compare the advantages and disadvantages based on similar criteria that is provided in the FDD.
2. Speak to a Franchise Lawyer and an Accountant
The FDD can be lengthy and complex. A franchise lawyer can explain, or help you to understand the FDD in clear terms and help you to discover pitfalls early in your decision making process. While you may not understand everything in the document, it’s a good idea to be familiar with the document before you speak to a lawyer.
In the same respect, it’s important to speak with an accountant as well. An accountant can help you to understand the franchisor’s financial statements and select a franchise system that matches your investment resources and goals.
Be sure to ask questions about things that are not clear to you or that you don’t understand. That’s a big part of the role of the franchise lawyer and accountant.
3. Speak to Current and Former Franchisees
Every franchisor is required to list contact information for both current and former franchisees. Make sure to speak to a number of franchisees to gain a balanced view of what it’s really like to be a part of a franchise system. There is great value in speaking to business owners who have made the decision that you are now considering. Also, it’s another way to get an honest assessment of the franchisees’ experiences (both positive and negative) that are beyond what you would read in the FDD.
Once you have completed this research, you’ll need to assess and evaluate all of the information that you have collected. Be sure to be honest with yourself and determine if the franchise you’re considering is best for you based on what you know about yourself including your: skills and knowledge; interests; and fit and compatibility with franchising.
Conducting franchise research is a critical due diligence activity before making a decision to purchase a franchise. Take the time necessary to conduct thorough franchise research to avoid any unwanted surprises and maximize your investment and franchising success.