Joining a franchise system has many advantages. Becoming part of a successful and viable business model means you don’t have to reinvent the wheel. The established framework is accompanied by comprehensive training and support from the franchisor, as well as a network of other franchisees. You also benefit from established brand recognition and national buying power. All these advantages help minimize your risk and increase your chances of successful entrepreneurship.
This all sounds good, right? But many people find the decision to actually making the jump and signing with a franchise to be daunting. Buying a franchise is a big life decision. The best thing to do when in this position is to ask questions that will help you make an educated decision.
Many questions can be answered by carefully examining the brand’s franchise agreement. The Franchise Disclosure Document (FDD) can give you clues as to the overall health of the franchise system. It can tell you if a brand is growing and whether they have a track record of following through on the support they claim to offer. You can also get a good idea of the brand’s overall culture from this document. For more information on how to use the FDD in your due diligence, click here.
The franchise agreement also outlines the contractual obligations in becoming part of the franchise. At first glance it may seem like the agreement is fairly one sided in favor of the franchisor. There are a lot of rules and regulations franchisees are required to follow. Keep in mind though, these parameters ultimately benefit you.
The franchise agreement safeguards brand integrity, which protects your investment. If another franchisee is conducting business in a manner that is destructive to the brand it can negatively affect your business. Compliance ensures consistency across the brand, thereby protecting your business.
Look to see how rules are enforced and whether the franchisor has a history of enforcing compliance. Item 3 of the franchise agreement is a good place to start. Consider the types of litigation listed here and see how the company handles conflict. While you want to see a low level of litigation, zero litigation should raise a red flag. A franchisor should be willing to take the necessary steps to protect a brand, however, beware of a pattern of excessive litigation.
Going further, verify the franchisor maintains an overall positive and productive relationship with its franchisees. Are they fair and reasonable in their dealings? Do they follow through and provide the support they claim? Are they committed to your success and not just out to collect a royalty check? Do they live out their core values? Are their decisions in alignment with those values? Do they have a strong culture established on a foundation of values? Verify they walk the walk.
Along with the FDD, meeting with a company’s leadership team and talking with franchisees in the network will also help answer your questions. Discussing potential returns is important, but also ask about values and how franchisees found the confidence to sign.
By delving deep into your due diligence and asking the right questions, you can gain the confidence to join a franchise system and reap the benefits that come with it.