Investigate Before Investing: Asking The Right Questions Will Increase Your Chances Of Franchising Success Lloyd Shears If you've been looking high and low for the right franchise opportunity, don't give up. And when you find that perfect fit, don't get lazy - the most important thing you will do in your search for a franchise or is your investigation of the chosen business. If you are willing to invest any or all of your hard-earned money, whether it's in a business, a franchise or on the stock market, you should take a few important steps in order to protect yourself from financial and personal ruin. A franchise agreement is like a marriage - it will (probably) last many, many years. If you ask the right questions of your potential partner before you enter into an agreement, you will eliminate a lot of the risk and increase your chances of success. I recommend the following steps to perform an adequate analysis of a franchise opportunity. You can take it one franchise at a time, or perform the due diligence on a few companies at once. After you have contacted the franchise company (or companies) you want to review, they should give you a copy of their Uniform Franchise Offering Circular (UFOC). Franchises in B.C. are not legally required to provide a UFOC, but Alberta law requires franchises to disclose information similar to a UFOC. (If a franchise company refuses to show you its UFOC, run away - fast). The document will vary in size and will range from 10 to 50 pages, depending on the size of the company. It will give you full information about the following: · The company's management team · Their training program · Their franchise fee and royalty payments · Their advertising policy · How long they have been in business · The number of franchisees in the system complete with names, addresses and phone numbers · Any litigation against the company · The cost of any equipment that will be required · Their exclusive territory policy · Any site location help · Assignment of franchise agreement · Length of franchise agreement · Termination of franchise agreement In many cases, the UFOC will include the company's financial statements for the last three years. In return for all this information, you will be required to give them information about yourself and your finances. Carefully go over the nuts and bolts of the franchise system with the help of professional advisors. There are a lot of rip-offs built into some franchise systems that essentially make the franchisee a captive customer forced to pay high prices for everything. Always question where the franchise company makes its money. After reviewing the UFOC, an essential part of your homework will be the discussions you have with the franchise company and a selected number of their franchisees. Questions for the FRANCHISOR: 1. How many franchises have you sold in the last 12 months? 2. Explain in detail how you will help me establish my business. 3. How, and from where, will my supplies come? Are your prices competitive, and do they reflect the bulk buying power of the system? 4. How does your franchise handle disputes? Do you use arbitration or mediation? How has the approach worked in solving problems? 5. What are your plans for expansion in my local area? 6. What will I receive for my royalty? 7. Does your company provide advertising material, and how much will this cost me? 8. What is the greatest challenge faced by new franchises? (Note: If you're buying an existing franchise that is established, you should request the operating records for the past two years). Next, call or visit some of the company's franchisees. There is no one better equipped to tell you what you need to know. Questions for the FRANCHISEES: 1. Are you happy with your investment? 2. If you could do it over again would you? 3. Has the franchisor been responsive to your needs? 4. Were you disappointed with any aspect of your business start-up? 5. Was your training of the quality it needed to be to prepare you for the business? 6. Has your product been supplied as necessary? 7. Are you pleased with the income of your business? 8. Were you able to arrange suitable financing through a bank? 9. Has cash flow been a problem? 10. What has been the greatest challenge of the business? 11. What has been the greatest reward? If you feel comfortable with the answers you get, plan to visit some of the franchisees and also the head office of the franchisor. Also make sure to obtain the advice of professionals such as an attorney and an accountant. Now, you have a mountain of information and impressions about the franchise. You are prepared to decide: "Is this for me?" Whether the answer is yes or no, you can be confident that you carried out an intelligent and diligent investigation. And remember, only you can make the important decision about owning your own business.