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Thread: Questions when assessing a Franchise for purchase?

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    Default Questions when assessing a Franchise for purchase?

    Hi everyone,having lots of fun so far in the forum.

    Inspired by a previous thread i read about due diligence and promises made by franchisors,id like to ask a question. WHat questions or relevant investigation would you ask or conduct when assessing a franchise for investment? I know its a beginners question,but i am a beginner

    Can not wait to hear your responses

    Sincerely Yours

    V

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    Member Needs New Keyboard Array Freelancier's Avatar
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    Your first step should be to go visit a couple of existing franchises, sit down with their owners, find out what kind of money was involved, how much support they get from the franchising company, what surprises they had, what their numbers are. You won't be competitive with them, because franchising companies don't usually set their franchises up to compete with each other, so they should be willing to share.

    As part of a research project for my MBA, we were investigating McDonalds and learned a huge amount from a franchise owner about the entire process he had to go through before he became a franchise owner and what the upside and downsides were. I highly recommend going down the same path before committing money.
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    Queen of the Forum Array KristineS's Avatar
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    Definitely agree with Freelancier on this. The franchise company will paint the most glowing picture it can because the company wants people to open franchises. Talking to someone who has been through the process and has a franchise will help you learn about potential pitfalls and give you a realistic assessment of what sort of business you could have. It might also help to, if you can find them, talk to someone who had a franchise that failed. A franchise isn't for everyone, and where one person might start up a particular franchise and do well, another might not. So you have to assess your personality as well as the potential of the franchise. t

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    Quote Originally Posted by LordVito9 View Post
    Hi everyone,having lots of fun so far in the forum.

    Inspired by a previous thread i read about due diligence and promises made by franchisors,id like to ask a question. WHat questions or relevant investigation would you ask or conduct when assessing a franchise for investment? I know its a beginners question,but i am a beginner

    Can not wait to hear your responses

    Sincerely Yours

    V
    First and most important is to get the franchisors disclosure document...FDD (formerly known as a UFOC). This is a document that is formatted to provide all relevant information about the condition of the parent franchisor. It includes their financial statements and an important chart that shows how many franchises have opened and closed in recent years. It also includes a list of all open and closed franchisees and their contact information. It is a very tedious and difficult document to read---BUT you must read it even if it takes a long time to get through it. It will also include the actual franchise agreement you will be signing. READ THAT in particular. No matter what is told to you verbally that is the legal document you will have to live with. I can almost promise you won't like it but it is what the franchise world revolves around.

    Do keep an open mind when you get negative feedback from disgruntled franchisees. There is always a percentage that fail and often due to their own fault. But take note of a pattern of similar complaints.

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