Another title for this article could be “How can I help my odds of not losing money?” In keeping with this negative slant, here are three things not to do. But, you can turn them into positives by following my advice.
I advocated in my last e-newsletter that you first of all set your priorities for your choice of franchise. So, the #1 mistake you can make is to skip this exercise entirely and instead go to a franchise expo and/or look at all the franchise websites online and make your short list on the basis of how well the franchisor markets the system and not what aligns with your financial resources, your lifestyle, your geographic area, etc. A choice made in this way usually makes you conform to the franchise instead of vice-versa.
A second mistake which we see often is to give short shrift to the Franchise Disclosure Document (FDD), a legal document that the FTC requires of all franchisors to give to prospective franchisees.
Sure, it can be 30,40 pages or more but it is important that you read through the FDD to understand your contractual obligations as well as the franchisor’s. As a first time franchisee you will almost certainly need the assistance of an attorney to examine all the information and preferably you will hire a specialized franchise attorney.
Caution: Don’t visit the franchise corporate headquarters before you carefully analyze the company’s FDD. Some franchisors might encourage you to visit for a dog and pony show before giving you their FDD but you must insist to have it earlier.
A third mistake some first time franchise seekers make is to skip the step of calling or, better yet, visiting at least five of the present franchisees of the system.
You should ask them about all the things that are important to you like “Are you happy with your choice? When do you expect to turn a profit? And is the franchisor supportive?” Surely, you will uncover some negatives about the business but you will also have a better chance of making an informed decision after weighing all the positives and negatives.
Lastly, don’t rush the research process. You’ll be making an important decision which can impact your life for years to come.
Click to find out more information about Choosing and Operating a Franchise.