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How Franchising Works


The Franchising Process

Once you contact a franchisor for more information, these are the steps that will typically follow:

The franchisor will send you brochures and other materials, and most likely request that you complete a questionnaire. You will proceed based on the outcome of that exchange of information.

The next step will be your evaluation of the company's Uniform Franchise Offering Circular (UFOC). The Federal Trade Commission (FTC) requires this document be provided to disclose detailed information about the franchisor at least 10 days prior to any franchise purchase. That information includes:

  • The franchisor, its predecessors and its affiliates
  • Business experience/history
  • Litigation
  • Bankruptcy
  • Initial franchise fee
  • Other fees
  • Initial investment
  • Restrictions on sources of products and services
  • Franchisee's obligations
  • Financing
  • Franchisor's obligations
  • Territory
  • Trademarks
  • Patents, copyrights and proprietary information
  • Obligation to participate in the actual operation of the franchise business
  • Restrictions on what the franchisee may sell
  • Renewal, termination, transfer and dispute resolution
  • Public figures
  • Earnings claims
  • List of outlets
  • Financial statements
  • Contracts
  • Receipts

For more information about deciphering the UFOC, visit Franchise411.com.

Visit as many of the franchisor's existing franchisees as you can. Meet directly with the owner of each establishment, and pay close attention to opinions of the franchisor. Ask the owners about the support they get on an ongoing basis, as well as the training and assistance they received when they first purchased the franchise. Did the franchisor help them with the location decision, and assist with initial set-up? What about the promotional efforts of the franchisor? Does the individual franchisees benefit from their investment? Do they get any say in how the advertising dollars are spent or allocated? Are their earnings living up to their expectations? Did their total investment stay in line with what they were expecting?

Ask specifically if they would do it again knowing what they know now. These opinions are very important to your research into each franchise. Look for trends that might indicate overall dissatisfaction with the company -- and avoid those like the plague!

Review the franchisor's business plan, operations manuals, and market analysis. Try to meet with the franchisor in person. Make a point to meet the franchising operations personnel with whom you will be dealing. Keep these questions in mind while you are meeting with them:

  • Is the information you are given clear?
  • Does the training program appear to be thorough?
  • Does it match what you were told by their existing franchisees?
  • Does the market look strong?
  • Are there too many existing franchised locations in your area? If the area is already saturated, you may need to look elsewhere (either in location or business).
  • Are there no locations in your area? This may not necessarily be a good thing either. It may mean that the competition has a strong hold on that regional market and you'll have a difficult time getting a share of it.

Take careful notes about each franchise opportunity you are investigating. Make sure you understand all of their policies and have a good feel for the level of satisfaction their existing franchisees have. Then use this information to make your final decision.