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Franchise Buyer's Checklist: When considering a Franchise

While investigating a franchise opportunity, ensure these points do not conceal problems

Franchise Development Services (FDS) article image

The Franchisee Prospectus should contain...

Directors' and key executives' business experience
Company's track record
Description of the franchise
Initial investment required
Other payments due to the franchisor
Data on help in raising finance
Restrictions on franchisee's personal participation
Termination/renewal of agreement terms
Number of existing franchisees and their success rates
Franchisor's rights to select/approve sites
Training and support guaranteed to the franchisee
Financial information about pilot operation
Financial data on the franchisor
List of franchisor's banker and other professional advisers

What to find out from the franchisor...

The Company's financial health and history
How long it has been franchising
Details of pilot operation results
Current number of franchisees
Permission to talk to random franchisees
Main source of company earnings
Value and appeal of product or service
Long term viability of product/service
Type and level of head office support
Full details of the training provided
Whether training is an extra cost
Total cost of taking up the franchise
Realistic working capital needed
Permission for bank references and other referees
Territorial practices and exclusivity terms
Types and amounts of advertising
Any need to buy products from the franchisor
Target obligations
Realistic profit and loss figures
Management service fees or royalty payments
Operating restrictions
Launch assistance
Sample contract

The Franchise Contract must cover...

Your rights to sell/transfer ownership of franchise
Obligations to the franchisor, e.g. buying supplies / services
Rights to renew or extend contract beyond original term
Terms and conditions for terminating contract
Description of exact training and support offered
Precise price, commissions, rental fees involved
Precise boundaries of the territory awarded to you
Description of your heir's rights in the event of your death

Be wary if the franchisor...

Promises huge profits with thin investments
Says 'act now to get in on the ground floor'
Fails to give statistics on sales and profits
Promises 'easy sales'
Fails to identify directors or principals
Tries to 'trade you up' to a higher fee
Says 'act now, it will cost more later'
Promises profits by sub-franchising
Has a name similar to a well known business
Promises large income from 'work from home'
Demands large 'front end' licence fee
Has a very short term contract
Provides no data on track record or financial strength
Cannot give plans for future development
Has vague territories
Is ignorant of competition
Has incomprehensible contract
Is vague about support and training
Has weak advertising
Is vague about your financial obligations
Has poor head office premises

For more information...

» View Latest PDF about Franchise Development Services (FDS) (Nov 2006)
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» Franchise Development Services (FDS) franchise archive (95)
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This article appeared on page 7 of the September 2007 edition of The Franchise Magazine
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Franchise Buyer's Checklist: When considering a Franchise

While investigating a franchise opportunity, ensure these points do not conceal problems

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