Franchise Buying Tips: Purchase Without Passion
Pop quiz: what's the number one rule of buying a franchise? If you answered: meet with the franchisor, go with a popular brand, or read the FDD - you are wrong. The first rule of buying a franchise is this: DO NOT BUY ON EMOTION
Yet that is exactly what most franchisees do. It's good to be enthusiastic about your future business plans. It's bad to fall in love with the deal and let your emotions take the lead. Think that won't happen to you? If you talk to a hundred franchisees you will find that few knew exactly what they were getting into. Most are sensible people with plenty of information who selectively twisted the facts to support an emotional decision.
Give your emotions a cold shower and use this list of safeguards to help you cut through the hype and make an objective decision:
- Do the math – Have your accountant make sure the figures and projections add up.
- Get professional help – Invest in an experienced franchise attorney and / or franchise consultant. Avoid sharing your plans with friends, relatives, and other ‘yes’ people who don’t understand the risks involved.
- Chill out - Be patient and wait for the right opportunity. If you are pressured to make a quick decision, walk away.
- Leave your checkbook at home – You’re most vulnerable to an emotional appeal at that first meeting with the franchisor. Never hand over money before you’ve done your due diligence.
- Be pessimistic – Take off the rose-colored glasses and run a financial model that cuts the sales projections in half, doubles the expenses, and triples the length of time until you expect to be profitable.
- Have an exit strategy – Like a pre-nup, it seems counterintuitive. But you need to know you won’t be stuck if you make the wrong choice.
- There are other fish in the sea – Before you fall in love with the first franchise you see, get information packages from all the other franchisors in the industry and make an objective comparison.
- Beyond the honeymoon – Sure, you’re excited now, but can you really see yourself doing this 20 years from now?
- Buy a proven system or one where the upside is huge Be careful with a franchise with only one unit or a very short business history. Don’t be tempted by an invitation to “get in on the ground floor”...unless the business concept really makes sense.
5 Tips for Finding the Right Franchise
So you’ve decided that a franchise is the right path for you? Now comes the exciting part—choosing among hundreds of franchise opportunities. Here are questions to ask yourself to help narrow the field:
What is the Franchise Disclosure Document (FDD)?
Franchisors, operating within 15 states, are required by law to submit a FDD to franchisees before they sign any agreement or any monetary exchange takes place. The Federal Trade Commission supervises these transactions and it lies within their jurisdiction to ensure that the franchisor in certain states provides the possible franchisee with certain information beforehand so as to ensure some manner of security to the franchisee. Due to some unethical behavior in the 1960s and 1970s, franchisors used their influential market position to hide certain information and franchisees unknowingly fell prey to these franchisors and went into harmful relations. To ensure that the franchisees knowingly enter into an agreement, the Federal Trade Commission made it mandatory for franchisors to submit a UFOC, later FDD, which is basically a document with certain information regarding the operations of the franchise.
Your Customers Change, Do You?
Have you ever compared the thought processes of today's consumer and yesteryear's consumer?