The first thing to consider is where exactly do your interests lie. Don't consider an industry only because it may be lucrative. If you don't enjoy it, you'll probably regret it. As an employee in a business you dislike, you can always quit. What do you do if you own the place and have invested your life savings into it? Your options are not quite the same. Make sure it is something you have an interest in and really enjoy doing.
After choosing an industry that may hold promise, you will have to find out more about it. Have you researched the outlook for this particular industry? Does its future look bright? What have been the growth rates for the last few years? What are the projected rates for the future? How does the market outlook appear for this particular product or service in your area? Lots of questions but a day or two spent at a good library is one of the best investments you can make (as well as one of the cheapest). If you do not know where to begin your search for the answers to these and other questions, ask the librarian. Librarians are usually very knowledgeable and more than happy to point you in the right direction.
After you have satisfied yourself that the industry as a whole holds promise, you need to narrow your focus down to the specific companies. Using the directory of companies that are listed in this program, call or write the ones that you are interested in. You will receive their package of information. This will usually contain glowing reports of the predicted expansion of their industry, a brief history of the company, perhaps a photograph or two showing a franchise in operation, some testimonials describing how the company's concepts really do work, and a cost breakdown on what it costs to become a franchisee. It may also contain a questionnaire for you to complete and send back.
Now is the time to ask questions. Don't be afraid to ask some very penetrating questions and to double-check the answers with outside, independent sources. The vast majority of franchisors are honest and aboveboard; however, as in all walks of life there are some unethical individuals just waiting to relieve the unsuspecting of their savings. Don't let this happen to you. This is your money you are investing - perhaps your life savings. Don't be intimidated out of asking the tough questions.
Also, while the franchisor may be totally honest and aboveboard, their companies may be poorly managed and/or financially weak. The results may be the same as if you had dealt with one of the unsavory characters in the industry. Ask questions and verify the answers!
Don't ever feel rushed to make a decision or to sign anything. If it's a great opportunity today it will be so tomorrow, and next week, and next month.
Make sure you have a lawyer review everything before you sign anything. Get an attorney who has experience dealing with franchisees. If you don't know an attorney ask people for a referral. Ask current franchisees for the name of their attorney and if they thought he or she did a good job for them.
Some of the questions you will need answers to are:
How long has the franchisor been in business? How long has it been offering franchises?
What is the current net worth of the company? Can you (or your attorney or accountant) see audited financial statements?
Who are the principals behind the company? What are their backgrounds? Have any officers of the company or the company itself ever been involved in any criminal or civil actions? Are there any litigations currently pending?
How many franchises (of this same company) are currently in operation? In your area? How many does it plan to add in the next year? The next two years? The next five years? Will you be competing with these new franchises?
Are these franchises independently owned or owned by the company? How many have failed and why?
Is there a market for the product or service in your local area? Have any studies been done to prove this? Is the demand seasonal? For example, lawn care and swimming pool products and services may be profitable only during the spring and summer months.
Does the product or service generate repeat business?
Will your local market pay the prices you will have to charge to be profitable? What will the demand be for your product or service in five years? 10 years?
Is the population in your area increasing? staying the same? decreasing?
Where are your nearest competitors? Who are they? How well do they seem to be doing? What kind of reputation do they have? Are they a franchise? If so, what kind of royalties do they pay? What kind of support do they receive? What kind of arrangement do they have with their franchisor?
What are the financial requirements of the company that you are interested in?
What is the franchise fee and what will you receive in return for it?
What is the full initial cost of this franchise? What does it cover? Can you afford it?
How long will you be in business before you start to show a profit? Can you survive until then?
Is there an on-going royalty fee and how much is it? What exactly do you receive in return for your royalty payments?
How much is the on-going advertising fee? What happens to these funds? Does it all go into a national marketing pool? Will a certain percentage be earmarked exclusively for your territory or can the franchisor spend (or not spend) it as they wish?
What type of training will you receive? Where will this take place? For how long? Who pays for this training? Who pays for the travel expenses?
What about continuing support? If you have a problem, who can you call? Can you talk to someone directly? or do you have to wade through layers of bureaucracy?
Will the franchisor provide you with information concerning a suitable location?
Must you actively run the franchise? Can you hire a manager for the day-to-day stuff?
Are there certain days or hours that you must remain open?
What records must you keep? What records must you submit to the franchisor? How often?
Will you be expected to buy certain products, services, equipment, advertising and marketing materials, etc., from the franchisor? If yes, how much?
What remedies are available to you if the franchisor does not live up to its obligations? What happens if you don't live up to yours?
How many franchisees have had their franchise agreement cancelled or terminated? and why?
Must you use the court system or can you go to arbitration? Do you have a choice? Where will this arbitration take place? In your home state? Or the state of the franchisor?
If you must litigate a dispute who pays for it? Is the prevailing party entitled to reimbursement for attorney fees? Court costs? Or is each party obligated to pay their own costs?
How long do you own the franchise?
Can you resell the franchise? What are the restrictions on doing so? What are the costs involved?
What if you should die or become incapacitated? What happens to your business? Can your family or other representative "inherit" the business? Does the franchisor have a right of first refusal?
What are your options when it is time to renew your contract? Can you renew? What are the costs to renew?
