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Do You Think A Franchise May Be Better For You? Despite what some people may think, franchising is not the instant route to a successful business. It certainly can be, and statistics indicate that buying a franchise may be less risky than investing in your own startup, but much must be investigated before signing on the dotted line before getting the right franchise. The investigation process starts with an assessment of your personal and financial capabilities, and your suitability to the business. The degree of experience with a product or service and the level of management experience are important considerations. Furthermore, will the business satisfy your income, security, liquidity and growth preferences? Once you have assessed yourself, you then have to assess the franchisor with the objective of determining its experience, reputation and capabilities, and its strengths and weaknesses. There are many different types of franchises available, and often many in a market niche, it is useful to create a "screen" through which to sift a prospective investment. If the franchisor passes through the screen, then serious investigation and negotiations can proceed. Screening information may be obtained from the following sources: the franchise package or website existing franchisees a visit to facilities bankers, accountants, lawyers and other experienced advisors trade shows and industry conferences franchise magazines and annuals chamber of commerce or board of trade The following are some of the more common things you should be considering when investigating a franchisor. You may have further issues, depending on the particular facts at hand. All issues should to be addressed with the objective of determining the franchisor's reputation, experience and capabilities, and its strengths and weaknesses. -history and reputation of the business -degree of experience with the business -directors, their history, experience and reputation -key personnel, their experience, qualifications and capabilities -financial strength of the franchise system -head office organization and key positions -how the franchisor make its money -training programs and programs to help franchisees -relations with franchisees, suppliers, bankers and advisors -competition and franchisor's competitive edge -marketing programs -number of operating locations -company owned stores and reasons held -performance of and special privileges to corporate stores -stage of franchise system development -growth and expansion plans and their funding -rate of failure and reasons therefore -pending lawsuits and current material events Finally, a thorough understanding of the franchise package is required. This includes acquiring a sophisticated understanding of the product or service and the proposed location, as well as the legal rights and obligations of both franchisee and franchisor. In other words, what exactly is being purchased by the franchisee? In summary, although franchising can have many advantages, potential franchisees must assess themselves, the franchise package and the franchisor to develop a thorough understanding of what it is exactly they are buying, and why they believe they can succeed with a particular franchise. By investigating the franchisor using the type of framework shown, modified for personal objectives and the current situation, you can efficiently screen prospective franchisors to leave only those that fit your pre-set parameters. That way, you can find and negotiate for the franchise you want and need, and one with which you believe you can work successfully. Although this framework provides a good basic approach to analyzing the purchase of a franchise, many more issues must be addressed. No one should buy a franchise without the aid of experienced professional advisors. Using lawyers, accountants, and bankers who all have experience in franchising will ensure substantially all your interests are considered. So minimize the risk of buying an unsuitable franchise, or finding out you are not suited to a particular business until it is too late. Develop a comprehensive buying plan which reflects your situation and which covers the three basic investigation issues. The effort is critical to finding a suitable investment. © 2007 John B Voorpostel CA www.iaccountant.ca
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