|
#Welcome to
Dhyansanjivani... franchise world - your comprehensive franchise resource.
Below, you'll find most information
on leading business franchise opportunities articles and products to help you on your
way to success.
Investigating Franchise Offerings
<p>Many people dream of being an entrepreneur. By purchasing a franchise, you often can sell goods and services that have instant name recognition, and you can obtain training and ongoing support to help you succeed. But be cautious. Like any investment, purchasing a is not a guarantee of success.</p>
<p>When investigating systems, carefully consider each of the following topics:</p>
<p><b>Investigating Offerings</b><br>
Before investing in any system, be sure to get a copy of the franchisor's disclosure document. Sometimes this document is called a Offering Circular. Under the FTC's Rule, you must receive the document at least 10 business days before you are asked to sign any contract or pay any money to the franchisor. You should read the entire disclosure document. Make sure you understand all of the provisions. The following outline will help you to understand key provisions of typical disclosure documents. It also will help you ask questions about the disclosures. Get a clarification or answer to your concerns before you invest.</p>
<p><b>Business Background</b><br>
The disclosure document identifies the executives of the system and describes their prior experience. Consider not only their general business background, but their experience in managing a system. Also consider how long they have been with the company. Investing with an inexperienced franchisor may be riskier than investing with an experienced one.</p>
<p><b>Litigation History</b><br>
The disclosure document helps you assess the background of the franchisor and its executives by requiring the disclosure of prior litigation. The disclosure document tells you if the franchisor, or any of its executive officers, has been convicted of felonies involving, for example, fraud, any violation of law or unfair or deceptive practices law, or are subject to any state or federal injunctions involving similar misconduct. It also will tell you if the franchisor, or any of its executives, has been held liable or settled a civil action involving the relationship. A number of claims against the franchisor may indicate that it has not performed according to its agreements, or, at the very least, that franchisees have been dissatisfied with the franchisor's performance. Be aware that some franchisors may try to conceal an executive's litigation history by removing the individual's name from their disclosure documents. </p>
<p><b>Bankruptcy</b><br>
The disclosure document tells you if the franchisor or any of its executives have recently been involved in a bankruptcy. This will help you to assess the franchisor's financial stability and general business acumen and predict if the company is financially capable of delivering promised support services. </p>
<p><b>Costs</b><br>
The disclosure document tells you the costs involved to start one of the company's franchises. It will describe any initial deposit or fee, which may be non-refundable, and costs for initial inventory, signs, equipment, leases, or rentals. Be aware that there may be other undisclosed costs. The following checklist will help you ask about potential costs to you as a franchisee.</p>
<ul>
<li>Continuing royalty payments. </li>
<li>Advertising payments, both to local and national advertising funds. </li>
<li>Grand opening or other initial business promotions. </li>
<li>Business or operating licenses. </li>
<li>Product or service supply costs. </li>
<li>Real estate and leasehold improvements. </li>
<li>Discretionary equipment such as a computer system or business alarm system. </li>
<li>Training. </li>
<li>Legal fees. </li>
<li>Financial and accounting advice. </li>
<li>Insurance. </li>
<li>Compliance with local ordinances, such as zoning, waste removal, and fire and other safety codes. </li>
<li>Health insurance. </li>
<li>Employee salaries and benefits. </li>
</ul>
<p>It may take several months or longer to get your business started. Consider in your total cost estimate operating expenses for the first year and personal living expenses for up to two years. Compare your estimates with what other franchisees have paid and with competing systems. Perhaps you can get a better deal with another franchisor. An accountant can help you to evaluate this information. </p>
<p><b>Restrictions</b><br>
Your franchisor may restrict how you operate your outlet. The disclosure document tells you if the franchisor limits: </p>
<ul>
<li>The supplier of goods from whom you may purchase. </li>
<li>The goods or services you may offer for sale. </li>
<li>The customers to whom you can offer goods or services. </li>
<li>The territory in which you can sell goods or services. </li>
</ul>
<p>Understand that restrictions such as these may significantly limit your ability to exercise your own business judgment in operating your outlet.</p>
<p><b>Terminations</b><br>
The disclosure document tells you the conditions under which the franchisor may terminate your and your obligations to the franchisor after termination. It also tells you the conditions under which you can renew, sell, or assign your to other parties. Training and Other Assistance The disclosure document will explain the franchisor's training and assistance program. Make sure you understand the level of training offered. The following checklist will help you ask the right questions. </p>
<ul>
<li>How many employees are eligible for training? </li>
<li>Can new employees receive training and, if so, is there any additional cost? </li>
<li>How long are the training sessions? </li>
<li>How much time is spent on technical training, business management training, and marketing? </li>
<li>Who teaches the training courses and what are their qualifications? </li>
<li>What type of ongoing training does the company offer and at what cost? </li>
<li>Whom can you speak to if problems arise? </li>
<li>How many support personnel are assigned to your area? </li>
<li>How many franchisees will the support personnel service? </li>
<li>Will someone be available to come to your franchised outlet to provide more individual assistance? </li>
</ul>
<p>The level of training you need depends on your own business experience and knowledge of the franchisor's goods and services. Keep in mind that a primary reason for investing in the franchise, as opposed to starting your own business, is training and assistance. If you have doubts that the training might be insufficient to handle day-to-day business operations, consider another opportunity more suited to your background. </p>
<p><b>Advertising</b><br>
You often must contribute a percentage of your income to an advertising fund even if you disagree with how these funds are used. The disclosure document provides information on advertising costs. The following checklist will help you assess whether the franchisor's advertising will benefit you. </p>
<ul>
<li>How much of the advertising fund is spent on administrative costs? </li>
<li>Are there other expenses paid from the advertising fund? </li>
<li>Do franchisees have any control over how the advertising dollars are spent? </li>
<li>What advertising promotions has the company already engaged in? </li>
<li>What advertising developments are expected in the near future? </li>
<li>How much of the fund is spent on national advertising? </li>
<li>How much of the fund is spent on advertising in your area? </li>
<li>How much of the fund is spent on selling more franchises? </li>
<li>Do all franchisees contribute equally to the advertising fund? </li>
<li>Do you need the franchisor's consent to conduct your own advertising? </li>
<li>Are there rebates or advertising contribution discounts if you conduct your own advertising? </li>
<li>Does the franchisor receive any commissions or rebates when it places advertisements? Do franchisees benefit from such commissions or rebates, or does the franchisor profit from them? </li>
</ul>
<p><b>Current and Former Franchisees</b><br>
The disclosure document provides important information about current and former franchisees. Determine how many franchises are currently operating. A large number of franchisees in your area may mean increased competition. Pay attention to the number of terminated franchisees. A large number of terminated, cancelled, or non-renewed franchises may indicate problems. Be aware that some companies may try to conceal the number of failed franchisees by repurchasing failed outlets and then listing them as company-owned
|
