How to Research a Franchise

One of the most important parts of buying a franchise is doing your homework.

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  • How effectively do the marketing programs bring customers to you? Franchisors love to talk about the brand and building value. "But what you need to know," says Elgin, "is whether customers will be coming in and spending money in your unit." The answer you want? "From the minute we opened, we were crowded."
  • What is the financial reality? Nail down as many financial details as you can with the franchisees, Elgin says. You may have to ask several different franchisees to get all your questions answered. How much does it really cost to open a unit? How soon can you start making money? How much can you expect? Only franchisees can give you the real story.
  • To get the best results with franchisees, don't waste their time, says Dupries. Let the franchisees know you've learned a lot about the brand already. Present yourself professionally, as a serious prospect. "The more they feel you're a heartbeat away from signing," he says, "the more information you will get."

    There's another reason for making a good impression on franchisees. Often, Dupries says, franchisors will follow up later by calling the franchisees you interviewed to ask them what they thought about you.

    When you're talking to franchisees, remember to consider their point of view, which may influence what they tell you. For instance, if you're talking to a franchisee near the territory you want, he may tell you business is awful because he wants the territory you covet to remain open to lessen his own competition or so he can purchase it later. Or some franchisees may brag about their success because they're too proud to admit they're really in trouble. Ultimately, Dupries says, you'll have to use your gut instincts to decide whether a franchisee is being truthful.

    If possible, try to spend an entire day with at least one franchisee. Mathews says that's the only way to find out how franchisees spend their time and what they're doing to be successful. It also gives you more time to build a relationship with the franchisee and hopefully get more honest and detailed answers.

    Mathews also advises asking franchisees how many of their ideas get implemented. The answer to this question will vary from franchise to franchise--some have very top-down management styles, while others encourage franchisee feedback and actively incorporate ideas from the field. If the franchisor isn't very receptive to feedback, you have to decide whether you'd be happy in a cookie-cutter format or you'd prefer a system in which you can be more entrepreneurial.

    There's a bottom line to being a franchisee, Libava notes. You're giving up a portion of your sales in royalties to the franchisor in exchange for its help running your business.

    "What you need to know from franchisees in the end," Libava says, "is what the franchisor does that makes it worth the fees."

    —By Carol Tice, a Seattle writer who reports on business, finance and social issues for Seattle Magazine, The Seattle Times and other leading publications.

    Copyright © 2009, Inc. All rights reserved.

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