Are you a good fit for the franchise?

Well, here we go, part three in the steps of evaluating a franchise opportunity. Are YOU a good fit for the franchise? No matter how good the franchise is from a branding perspective, or how good of a business system it is, there are skill sets that are required in order to excel. One must be a good basic and realistic self concept prior to purchasing a franchise. Are you the kind of person that can follow a system? If you are going to constantly be looking for ways to change or recreate what you purchased, why buy a franchise in the first place? Also, do you have the skill sets and temperament necessary to run that business. In retail or food service you had better be at least be decent when it comes to finding, interviewing, hiring and managing people. No matter how good the system is at McDonalds, someone still has to man the frier and flip the burgers. Without people skills to manage or hire the kind of management that can get the job done things are going to very challenging.

This is equally true for most service franchises. If you purchase a home based franchise, which I like to call franchised business opportunity, you better be pretty good or at least out going enough to be willing to learn how to market, promote and sell your business offering. No matter what I teach you as far as product knowledge goes or what service you offering, if you cannot get the business you are going to be in for a challenging business experience from a standpoint of revenue generation. Many people purchase home based or service business franchises because the entry costs and overhead are lower and the financial commitments such as executing a lease and purchasing a lot of equipment are not necessary. However, if you are the kind of person that cannot deal with rejection and do what it takes to establish your offering, you are going to be sitting at your desk playing a lot of computer solitaire rather than actually doing business. In this day and age, cold calling or telephone prospecting is not nearly as effective as it used to be. With the advent of caller ID, and voice mail, a lot of prospective customers just do not answer their phones any more especially if they know who is calling. Beating the streets has turned into doing networking groups, luncheons, joining the local Chamber of Commerce and putting on networking meetings yourself.

This brings me to another point namely, "computer skills". There was a day when you did not have to be very good on a computer to run a business. While that may be true for "certain" businesses, for the small business or franchise owner, computer skills are a must. One cannot hope to be productive in this day and age and get the kind of work done that one's competitors are doing without decent computer skills. So, if you are the kind of person that cannot use the basic Microsoft Office programs, including a decent email client such as Outlook, you better take some classes, get some private tutoring or something because if you don't you are going to get left in the dust.

To recap.

1. Can you follow a system or in this case the system of the franchise you are buying?

2. Are you the right for or can you hire and manage the right people that are if the revenue model affords more than one layer of upper management?

3. Do you have the kind of skillsets such as computer skills to run a successful business in today's environment?

4. Do you really want to do this?

Ah, ha! One should do a lot of soul searching before going it on their own even if that means owning a franchise. Regardless of what anyone tells you, you are for the most part going to make a decent amount of mistakes so make sure you have reserves, also it's going to be a lot of work, probably doing a lot of things that you are not naturally good at. So take your time, look at everything from both sides then decide if franchise ownership is right for you.

How Solid is the Franchisor?

OK, so you have looked at the franchise and you think it is a good business model, one that will you would buy from and one that has some legs so now the question of how solid the franchisor is comes into play. The one great thing about buying a franchise is that you receive a Uniform Franchise Disclosure Document or UFDD. The bad thing about buying a franchise is that you receive a UFDD.

You are probably saying to yourself, how can it be good and bad at the same time? Well, here's the deal. The UFDD will tell you quite a bit about the franchisor but only if you know what you are looking at and the correct questions to ask. Also, by and large they are some pretty long documents and it is very tempting to glance and skim when in reality one should be digging, questioning and prying.

As I have said before, a franchise is a proven business system or concept. In some later posts I will talk about looking at franchises depending on the age and or the number of units they have sold and that are under management. With a franchise, age and size do matter. Oh but I digress for now.

All UFDD's for the most part look the same. That only makes sense since UFDD stands for "Uniform" Franchise Disclosure Document. So what's in this thing and what does it tell me you ask? First and foremost it tells who the owners and or officers of the company are and something about them and their past business experience. You can of course do your own work and search out as much about them as you can. Ask questions about they are, what they do and what they have done. Do the officers draw a salary if they do not work there? These are all things that go into looking at the company you are buying from. One point, there is nothing wrong for a newly launched service based franchise that is designed for home start up to have little or no staff. Many service franchises can be run from home office and many cases that is what prospective franchisees are looking for, a nice living without the headaches of employees. If a franchisor is just starting out selling franchises and their company owned franchise does not have a large staff, do not expect them to have a big support staff for a very few franchisees. That does not make a lot of sense. In a new service franchise you must evaluate the offering based on the business model more so than the brand because the brand is not really established yet. On the other hand, in a more established service or a retail franchise, you are going to want to see some staff for support whether is be operations or marketing Depending on the business and also on the brand a certain about of operational and marketing support included in all franchises. This is true even for newer start up franchises especially in the retail space as prospective franchisees normally need help with things such as site location and advertising in your local market. Its going to take some staff firepower to help you pull that off.

The next thing to look at in any UFDD are the financial statements of the franchise company. Again there significant differences between the financial statements of a new start up franchise as opposed to an established brand. The franchise laws were changed in July of 2007 with the new changes becoming law and mandatory in July of 2008. One of the things that have changed with adoption of the new law is the way that "Start-Up" Franchises are treated. In the past it was mandatory for Franchisors to include audited financial statements. The law now has changed for new franchisors requiring either just reviewed financials or stating that it is a start up franchise and "No" Financial statements at all. In reality what you should be looking for is audited or reviewed financials from the company owned business from which the franchise has been birthed. It should be noted that financial statements are not provided for prospective franchisees to see how much they might be able to make, but rather show the financial health of the company offering the franchise. If you don't know how to read and interpret a financial statement enlist the services of a CPA, he does. Ask hard questions, if you don't get good answers walk away.

As long as you are not purchasing the first franchise from a new franchisor then one most important things you can do is contact existing or past franchisees. The term "validation" in franchising means that franchisors rely of existing franchisees to tell prospective franchisees how great they are. By and large most franchisees will be honest when you call them though even if hey are unhappy they may not totally bare their souls to you. After all, they bought and do not want to look liked they made a mistake as in reality no one does. New start up franchisors bend over backward for their first five to ten units. If you are purchasing a startup franchise and the very few franchisees they have are unhappy, run for the hills. Now if you are purchasing an established brand, see if you can track down franchisees that have been terminated or left the system. As I have discussed in other posts, current and past franchisees are all listed in the back of the UFDD. Disclosure means that the franchisor discloses everything to the prospective buyer and answers all questions truthfully. Ask hard questions, engage your professionals, accounts and attorneys and if you don't get answers you can live with, don't buy.

Evaluating a Franchise Part One

It is often quoted that after 5 years, 80 percent of small businesses fail, but conversely 90% of franchises are still in business. While that sounds good, that figure is not being quoted nearly as much as it used to be. In the early '90s, Timothy Bates, a professor at Wayne State University, studied Census Bureau data on 20,000 new enterprises and found that 38 percent of franchises failed within four years of opening their doors, vs. 32 percent of independent start-ups that went belly-up. While there are current studies as of the writing of this article, it is generally accepted that franchise failure rates are a lot higher than most people think.

Under federal franchise disclosure requirements, Franchisors are required to disclose franchises that are no longer in business as a result of "terminations", "sales / transfers" or "transfers". This information is located in the Uniform Franchise Disclosure Document, UFDD, which replaced the Uniform Franchise Offering Circular, or UFOC in July of 2007 when the new franchise law of 2007 was passed. What is not known is how many of these "terminations", "sales / transfers" or "transfers" are actually failures. This way of reporting can really "hide" the true failure rate.

That said, how can we truly evaluate a franchise before buying one?

In reality there are three components to purchasing a franchise. One the the actual business concept itself, the second is the franchisor and the third one is you. The most basic definition of a franchise is that it is a "proven business concept". I know that sounds simple, but it is not and there are a lot of variables. Most successful franchises and franchisors for that matter say that the best franchisees are people that "follow the system". Well, what if you are a person that does not have the aptitudes or personality the "follow the system"? That is just one reason why it is important to consider all three variables when one considers purchasing a franchise. 1. Is the franchise model a proven business concept? 2. Is the franchisor solid? 3. Are you a good fit for the franchise and prepared to "follow the system"?

Let's go through each of these in order and in separate posts and see.

Is the franchise model a proven business concept?

One would like to think that all franchises are proven business concepts but in reality that is not true, or suffice to say that some are a lot more proven than others. Here are some good questions to ask and consider.

Was the franchise founded on a company store or was it a franchise just birthed from an idea?

Any franchise that was founded on company owned location with a track record has in my estimation a much better chance of success than one that is not. A franchisor owned location permits the franchise company to test and come up with new ideas, to see what obstacles are in the ever changing business environment that we all find ourselves in. How can you sell me a system if you have never done it yourselves? I should say here that most franchises are founded on owned locations and also that the vast majority of retail concepts have company stores as their beginning.

How long was the operator in business before they decided to franchise?

Hey, you are buying a proven business concept, right? How long has the person selling you "the system" been doing what it is that they are telling you can do or should I say selling you what they say you can do? It's important to look back as far as you can at the history of the franchise.
Many service franchises can be start and run from the home where as retail franchises cannot. You want to see some significant business history. Ask questions like, how many deals do you do a year in the company office? How many clients do you have or what is an average day like for you? Ask as many questions as you can think of about how the business works and then think about how you and your skill set fits into what they are doing.

How is the franchise affected by ups and downs in the economy?

Seriously think about how the business does in different economic cycles. At this time the housing market is in the crapper, but that will not last forever. Also, just because housing is down does not mean that people are not remodeling homes, doing home improvements or putting additions on their homes. These things are done in good and bad markets. No matter what the state of the economy people have to live, buy food, get their cars repaired, take care of their kids etc. The number of units and age of them can give you a lot of insight into how the business model weathers economic downturns.


Would you pay or use the services of the franchise, and how big is the market?

This is a big question to consider. Would you buy there? If so why? Remember, not everyone thinks like you think. Not everyone buys because you would and not everyone does "not" buy because you would not. Try to be objective and think about what the franchise really offers, why it is unique and what they do to leverage that uniqueness into a high probability of success business model.

These are just some of the questions that should be considered when evaluating a franchise prior to purchase. Please stay tuned for parts 2 and 3 in the coming days, I hope.

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Back in the Saddle Again and The Franchise that says it's not"

Helllllooooooo:

My blogging has taken a back seat for a while, due to the same reason anyone else who blogs does not for a while. I ran out of time or I did not have a lot to say. Anyone who knows me would tell you that it is very unlikely that I do not have anything to say, just ask me. But. I want to put things about that have some meaning, relevance and importance to those that are going to fork out some moola to buy a business system, aka business opportunity, franchise or dealership. Oh but I digress.

Recently I received a request from a woman whose name will remain unknown. She wanted some help in looking at a business system, that she was told was "NOT A FRANCHISE". Even in the agreement that she was sent it says that it is "NOT A FRANCHISE". Well folks as nice as this sounds if it walks, acts and quacks like a duck, it is indeed a duck. There are three tests which the FTC and the States which require franchise registration require in order to determine whether or not a business system, is a franchise. As I have discussed before these are as follows:

1. It costs more than $500.00

2. It requires the use of a Trademark or Service Mark.

3. It exerts significant control or influence over the way things are done in that business.


It is this simple. It is not hard. In looking at the document that stated the business was "not a franchise" it as so much a franchise that I could not believe the company was actually trying to get away with not being a franchise.

Additionally they were asking for $60,000 in upfront fees for what amounts to be a three year term plus $750.00 per month stating from the first month. The normal franchise term is ten years. Not only were they trying to sell an illegal franchise, they were offering what amounts to be a very bad deal for what amounts to be a little bit of training and some DVD's. When asked for people that have already bought into the concept, they provided only one person. This is a really bad sign. Franchise laws exist to protect the consumer, the average Joe. In my next post I will talk more about disclosure and why it exists.

The most interesting thing about this whole issue is that this was advertised on their website as a "Business Opportunity". So, they are a business opportunity that licenses their trademark, charges more than $500 and restricts what can and cannot be done under the mark, in other words, a franchise. If they did not license the trademark they would probably be a business opportunity in which case they would still have to register with 26 States. So you see.

The question that most people has is, Who cares if they are a franchise or not? Well first of all registered franchises and business opportunities afford protection under the law. Secondly what happens to the value of your business if one of the states comes after your parent company for selling illegal franchises and puts them out of business with fines and penalties? That kind of dilutes that value of the brand you paid for, doesn't it?

In closing always remember that it's your money. Ask questions, know what you are buying and do your homework. And, when people use the term "ground floor opportunity" run like hell.

You Got Scammed, Who's fault is it anyway?

Caveat Emptor, translated from latin to english, Let the Buyer Beware. Hey, I have been scammed and more than once. If you are someone who is a risk taker out looking for ways to make a buck, pursuing business opportunities on the internet and submitting inquiries to offerers of business opportunities and franchises then you are fishing in a sea of potential scam artists. Old sayings are old sayings because they have been around for a long time. Here are a few that apply:

1. There is no such thing as something for nothing
2. If it sounds too good to be true is almost unquestionably is
3. If it were easy everyone would do it and there would be no money in it
4. A fool and his money are quickly parted

There is that enough? The word entrepreneur means "one who accepts the risks of business". That risk means that you can lose all of your investment and maybe more. Everyday hundreds, even thousands of people are looking for a way to get out of the job market and into business for themselves or at least find a way to supplement their income. This is something that should be applauded and in reality if you are not a creative person that can come up with ways to make money then it is a good idea to consider buying a "system". In reality anytime you look at an ad for "How to make money" you are looking at a system. Internet Marketing ads about making money on Ebay, or with your own website or through affiliate marketing, or any of the other, I just sit back at my pool on my computer and make money, they are all "systems". Granted they are systems that are by and large based on ridiculous claims, but they are systems. Additionally franchises, business opportunities, and licensed dealerships are "systems" too. One would like to think that the more that is charged the more legitimate it is. Not true. Also one would like to think that the more regulated a system is, then the more legitimate it is, with franchises being the most regulated of them all. While there is some truth to this, purchasing a franchise is not without risk. If you are not a person that can follow a system you most likely are going to have your share of problems.

So, if you get scammed, who's fault is it? Buyer Beware! Most people would like to think that most other people are like they are, honest, trustworthy and legitimately looking for a fair deal.
Thinking like that is one of the main ways people get into trouble. So the question of whose fault it is comes down to the people involved. I could get into a big discussion of law and morality or ethics here but I am not going to do that. If the offerer of a business opportunity has a conscience, which by the way many do not, then they should have criteria and systems in place to screen out people that are not really a good fit for the offering. But, then again there should be no hunger or poverty in the world either, right? We should all be our brother's keep too right?

The reason that state and the federal government have registration and disclosure laws is simple, in that they are trying to protect the consumer or purchaser in this case. However ultimately it is the purchaser's obligation to do the proper research on the opportunity and the people offering it before they spend their hard earned money. Caveat Emptor.

Hard Questions for Business Opportunity Sellers

So here you are, tired of the corporate rat race or tired of not having enough cash, or just looking to get out on your own and you want to start your own business. Many people in the same boat get on the web and look for a business opportunity to purchase and of those unfortunately many get taken for a little and in some cases a lot of money. As I have discussed in some of my previous posts, franchise for the most part, by law, must disclose a lot more information than business opportunities. Also as has been mentioned previously, there are states which do regulate both fairly closely in the same way but definitely not all. In the 26 states which require registration, (search the posts) and you will find the link the first question you should ask is, "Are you registered with the state"? If they are not you may want to reconsider, if they are they should already have supplied the business opportunity disclosure document. In States where registration is not required here is a list of questions and also some of the intricacies of asking these questions.

1. Who are the owners of your company?

Many times you will be told that the company is a corporation and has shareholders. While this can be true, there are almost always major and minor shareholders. Who is in charge and who makes decisions? Many states and cities have search able court records online. Search under any of th key players names and see if there are any present or past lawsuits or complaints against them. Call the State and see what information you can find about the company.

2. What have your owners done in the past as far as businesses go?

The reluctance to give this kind of information is a red flag. Anyone that does not want to be open and honest about such things should be looked upon with great suspicion. Also anything that is said needs to be verified. Ask what you can do to verify the information.

3. What information can you send me, including but not limited to an agreement that I can look at or have my attorney review? Just the mention of attorney sometimes will cause a scam artist not to want to deal with you.

4. How long have you been in business? CHECK IT OUT

5. Who else has purchased this opportunity that I can talk to? You need to make sure these are not the same people that they always give out as references. You would be surprised at how often this happens. Have a relative or friend of yours call up from another State and act like an interested party and see if they give the same list of people.


6. Do you have any lawsuits against your or this company because of it's actions? Most states and jurisdictions have online searches.

7. How many people have not made it and did not really do well out of all the business opportunities that have been sold? If they tell you that they have sold quite a few and have not failures, then it's a MAJOR RED FLAG.



Take the name of the Business Opportunity and put it into Google with the term "scam" after it. Depending on how many people have looked at it, or bought it, you will be amazed at what this will uncover. Be advised though, some competitors use this as a tactic take business away from the business opportunity that you are investigating.

Ultimately if you spend your money on anything it is your responsibility to check it and the people offering it out. The more you are going to spend the more homework you should do. When is it all said and done it is Caveat Emptor.

What is a Uniform Franchise Offering Circular and Why are Franchises Safer than most Biz Opps

Franchises are business opportunities which are regulated by the Federal Trade Commission, FTC and also by various State agencies. What this means to the common person is that franchises are required by law to disclose certain information about the owners, the company and also the current state of the franchise. The purpose of this information is to give the prospective purchaser a consistent idea of what exactly they are buying. The Uniform Franchise Offering Circular commonly known as the UFOC contains current and recent lawsuits against the owner and or officers of the franchisor, audited financial statements, the license agreement granting the franchise to the buyer, all franchisees and their contact information that are currently part of the system, also any franchisees that have left, been terminated or whose license agreements have expired. Additionally there is a list of the training materials supplied, as well as a detailed description of all cost and expenses that a franchisee expects to incur such as any equipment, leases, and or advertising and marketing expenses.

Franchise law compels the franchisor to publish information that would give the prospective purchaser a lot of information that they would have to dig and ask for on their own in order make a determination if the franchise is in good shape, what to expect and something about the owners. At the present time much of this information is not available for those that want to purchase a business opportunity. If per chance you live in one of the states where business opportunities are highly regulated such as Illinois for example then a registered Biz Opp must supply much of the same information as is supplied by a franchisor. However, there are so many of them out there that many operate illegally, aka without registering in even the registration states. Much of this may end soon as a new franchise law was recently passed in January of 2007 that separated Franchises from Business Opportunities. In addition a FTC national Business Opportunity Law is on it's way and will probably be in place in 2008. It is not currently known what the 26 states that currently require registration of business opportunities will do but suffice to say that normally states that pass laws that are more demanding that federal laws do no not normally ease them later in any event. These states can be seen at http://www.ftc.gov/bcp/franchise/netbusop.shtm.

So many people have lost significant sums of money purchasing what amounts to be bogus business opportunities that state and federal agencies have had little choice but to do something in order to protect those that are are being taken advantage of. Unfortunately there are a lot of people of there that will do anything to separate people without business accumen from their money and thus government will step in. On one hand one can take the side that anyone should know what they are buying prior to purchasing it, on the other hand some of the biz opp offers are very slick and good at inducing those that are unaware to buy. It is a constant battle of ethics, moral, responsibility and regulation. Basically franchise offers must tell you a lot more than business opportunity offers. That said not all of either are good or bad, later posts will tell you how to smoke out a rat.