16 Things To Expect From Your Franchisor Before You Invest! Howard Bassuk If you’re thinking of buying a franchise, it’s important that you understand what you should expect from your franchisor. With thousands of franchises to choose from, you can be sure that there will be many differences in what they offer you, and what you can expect. Despite the differences, there are several things you should expect from any franchisor. It’s important that your expectations be reasonable. At the same time it’s just as important that you not settle for less than you should. Over the years, I have heard some pretty amazing things that prospective franchisees thought they should expect from their franchisors. I’ve heard everything from franchisees suggesting that the franchisor should to the day-to-day work for the franchisee, to the idea that the franchisor ought to pay for the furnishings, fixtures and equipment that would then be owned by the franchisee. It’s hard not to smile at some these expectations of what a franchisor should do. However, there are many real and essential expectations that a prospective franchisee should have about what their franchisor should be able to provide for them. First. A franchisee should expect a franchisor to have a successful system that can be easily transferred from the franchisor to the franchisee. If the system isn’t successful or proven why should you as a franchisee pay for it? Don’t put yourself in the position of having someone learn their business on your fees! Second. You should expect the franchisor to spend the time to answer your research questions before you buy. There are certain legal restrictions like those concerning earnings representations, that may prevent a franchisor from answering some questions. But, other than those prohibited by law, all questions should be answered. Third. You should expect that your franchisor is some you feel you will be compatible with. You should like your franchisor, and feel that the franchise’s vision of the future conforms to your own. It is very important for you to believe n the future plans of the franchise. Remember that very few things stay the same, and certainly businesses will need to change to stay competitive. Fourth. You should make sure your franchisor and your franchise agreements are fair. The nature of a franchise agreement is usually at least somewhat slanted towards the franchisor. The owners of the franchise company have taken a risk and developed a business that you are asking them to teach you. In return, they will want to be protected, and they will want to control certain parts of the system. However, make sure that the street runs both ways. Find a franchise that grants you unlimited rights to renew (an evergreen clause) and rights to sell and transfer your franchise easily and fairly. Most importantly, find a franchise that recognizes your equity rights in the business that your are going to work so hard to build. Fifth. You should expect your franchisor to help you find a location that is suitable to your needs. Legally, many franchisors are afraid to “insist” that you take a location that they have found. Conversely, many are loath to let you pick a site on your own. The best solution is to have a franchisor that works very actively with you to find a location, and that gives you several choices to pick from. Find a site that both you and the franchisor like, rather than one that only one of you believes in. Make sure that you don’t try to become a demographics expert overnight. It happens to all of us. We sign the franchise agreement, and all of a sudden we are magically endowed with great wisdom and insight. Resist this temptation. I have seen franchisees insist that they could recognize a good site better than a franchisor with hundreds of locations and over 25 years of experience. Sixth. You should expect your franchisor to provide you with quality training. Franchisors typically assume that you have no prior independent ownership experience. That means they not only have to teach you about business, but about the franchisor’s specific business. Be certain to talk to some of the newer franchisees and see if the training they received was complete enough to get them successfully into business with the fewest possible problems and glitches. Check to see if the franchisor has a real commitment to current and future training, too. Find out what happens if you need additional training later one, either for yourself or for your employees. Will you have to pay for it? The franchisor should, within reason, make training available to you, either at no charge or at a reasonable rate. Seventh. Your franchisor should visit you and help you at your location after you have opened for business. The purpose of the franchise fee that you are paying is to acquire the license to operate your franchise and to cover the costs the franchisor incurs while you are getting into business. The fee will cover the franchisor’s cost of marketing to find franchisees, and will cover the costs of consultants, brokers, real estate agents, trainers, etc. There should also be enough of the fee allocated to local follow up so that you are given whatever support that you will require getting your business launched. There’s a trap here. Sometimes franchisees think that a lower franchise fee equates to a better buy. In fact, in many cases, nothing could be farther from the truth! If the franchisor does not have the funds to help train you, follow up with you, ad do what is necessary to give you the best chance for success, you will have saved nothing and probably cost yourself your business! Eighth. You should expect your franchisor to have the name recognition and/or growth possibilities that you feel are needed to give you and advantage in implementing your personal business plan. Often you will have to make decisions that balance name recognition (usually a bi-product of size and age) with growth opportunities. Ninth. You should expect your franchisor to think of you as an associate, a “partner”, and as a customer. This is a hard balance to strike, but you want your franchisor to be franchisee friendly. You can often find out much more about how a franchisor behaves by talking to other franchisees than you can by simply reading the franchise offering circular. Tenth. You should expect your franchisor to future oriented. It’s not enough to have a system that works well today, and has succeeded up until now. Businesses, like the world around them, constantly change. Your franchisor must have a good, clear vision of the future, and you must agree that the vision is the right one before you buy. Too often franchisees get dissatisfied when a franchisor does not change with the times, yet that same franchisor might have demonstrated little propensity to change in previous years, and you as the franchisee could spot that likelihood by your investigation before buying. A few days ago I was talking to a franchisee who bemoaned the fact that the franchisor did little “national marketing” for the franchisees. I asked him how much each franchisee had to contribute to such a national ad fund (typically it is one to three percent of sales) and he told me that there was no mandatory contribution required by the franchisor. I then asked him why he was surprised that little was done in that regard and why he didn’t realize that would be the case when he purchased the franchise. Be careful here: Oftentimes a franchisee will think a franchise is more attractive because it does not charge fees that are charged by other franchisors. Later on, as mentioned above, the franchisee might be sorry that the charges don’t exist because the franchise has grown to the point where the fees would be more than offset by the benefit that would accrue to the franchisees by their use! A better solution is to find a franchisor that has the right to collect fees even if they don’t presently do so, as long as there is some surety as to how and when those funds will be spent. Eleventh. Look for franchisors that are “inclusive” in their dealings with their franchisees. Look for franchises that have strong advisory councils, and/or franchisees represented on the franchisor’s Board of Directors. You want to be part of a team, and want to know that your voice will be heard. Look for franchisee friendly franchisors. Franchisors that are accredited with groups like the American Association of Franchisees and Dealers have to agree to certain standards in working with their franchisees. If they also meet your competency standards, they might be great franchisors to look at. Twelfth. Look for a franchisor that has a solid record of keeping its franchisees in business successfully. Some franchisors will move heaven and earth to help you succeed in business. Others will assist you to sell should you want to leave the business. Both are extremely important should you run into trouble, or want to leave the business altogether. Very often younger franchisors will have neither the resources, nor the experience to help you if you get into financial trouble. Sometimes a bigger and more established franchisor will have those resources, and will use them for you benefit (and often their own). Thirteenth. You should expect your franchisor to have the human and financial resources to provide the support needed to give you the best chance of being successful. Too often franchisors, like other growing companies, are short of money, people or both. While a younger company will obviously not have the resources of a major corporate behemoth, you must still make sure that your franchisor, regardless of size, has the resources needed to do the job for you properly. Fourteenth. You should expect your franchisor to be relatively litigation free. Be sure that any litigation against the franchisor would not affect your ability to do business. In today’s litigious society it’s ridiculous to expect a franchisor to be litigation free, but there are many excellent franchisors that have little, if any litigation, year in and year out. Fifteenth. Expect your franchisor to use technology and communications to keep you ahead of the competition. Don’t underestimate the importance of this. If a franchisor is slow to embrace new technology, you could suffer. Sixteenth. Expect your franchisor to be selective in whom they award franchises to. Ask the franchisors that your are talking to how many people they turn down for a franchise, and why. In part, the strength of a franchise system will be based on the quality of the people involved in that system. If a franchisor selects better franchisees, chances are the system itself will be stronger. There are a lot of things you should expect from a franchisor. This list could be even longer, but what really matters is that you make sure that the franchise that you become a part of has the ingredients necessary to help you become successful. Think of a franchise as a box of tools. You will want to have the very best tools for the job you want to, but you will still have to be the one that uses the tools successfully. The more and better the tools, the greater the changes that you will be successful in your job of building a successful business. So, expect the franchisor to provide you with great tools for the job you’re considering. Just remember that tools alone will not get the job done.