There seems to be an ugly trend in the franchise world, an unspoken conspiracy among drafters of franchise agreements to shift the entire burden of the franchise business to the franchisee. The steps a franchisee takes before buying have become even more critical, not just to success but to financial survival.
7 Steps to Buying a Franchise
1. Investigate the viability of the business model. How much revenue must be generated to supported franchise fees and meet your financial needs (we are not even to financial goals yet.)?
2. If operational feasibility checks out, then how about the franchisor? Experienced? In what ways? And for how long? Understand the business? Understand the business of being a franchisor?
3. Get the FDD. Read it! Read the contracts (e.g. franchise agreement, etc.) it contains line for line! Think you might be willing to sign? Hire an experienced franchise attorney to review the documents. Be wiling to pay real money for a quality in depth review.
4. Take attorney’s advice and recommendations to heart. Then talk to franchisor again.
5. Don’t just sign, negotiate! It can be done.
6. Consult small business experienced CPA; Confirm your financial ability to pursue the business and line out 1, 2 and 5 year plans
7. Be prepared to walk, if final terms not acceptable.
Probable consequences of not following above steps:
1. Make no money and have very low paying job with long hours; and/or
2. Business fails, lose money; and/or
3. Business fails and lose personal assets because of personal guaranty; and/or
4. Franchisor sues for unpaid royalties; and/or
5. Franchisor sues for lost royalties for balance of term; and/or
6. Pay litigator to defend and counterclaim and /or…
7. File bankruptcy.
Sound scary? Then do your job. “Trust me” is not a part of the equation, just do your research and use your head!