Franchises and Multi-Level Marketing 3

What should I look for in a franchise?

First and foremost you want to look for a franchise that sells a product or service you would enjoy producing and selling. Your best bet is to find a franchise in an industry you know at least a little bit about. All too typical is the case of the Chicago car salesman who decided to change careers and go into business for himself. He bought a basement waterproofing franchise but then found the business boring. He wanted to sell it, but sales weren't as high as he had expected they would be and he had trouble finding a buyer. He was stuck paying off the franchise fee and working at a business he didn't enjoy.

Once you've pinned down some possibilities, you should get and carefully scrutinize a disclosure document called the Uniform Franchise Offering Circular (UFOC) for the franchise or franchises you are interested in. This disclosure document will give you the information you need to help you determine the answer to these and other important questions:

• How stable is the franchise and what is the background of its officers? (Any history of litigation or bankruptcy of the franchise or its officers is supposed to be included in the UFOC.)
• What will all your costs of purchase be? Advertising, training, inventory, insurance, and all other costs in addition to the franchise fee and royalties should be spelled out.
• How well established is the franchise? Have they been in business for many years or are they brand-new? How many other franchises have they opened and where are they located?
• What kind of track record do they have? Have most of their franchisees been successful? Names and addresses of franchisees in your state should be provided before you sign any contract. Call the people on the list and ask about their experiences.
• What kind of training and support will they provide as part of your franchise fee?
• How close to your store can the franchisor let another franchisee set up shop?
• Will you be required to purchase supplies or products from the parent company? If so, compare your cost to the local retail prices of the same goods. There have been instances where the price from the franchise company for goods was higher than the price of the same goods in local retail stores. Selling anything under such conditions would be quite difficult.
• What do the contract terms say about ownership? Can you sell out to someone else if you wish? If you want to continue when the contract expires, will it be automatically renewed? Will you be able to convert your store into an independent operation if you should want to?
• Determine how disputes will be handled should they arise. Watch for clauses requiring arbitration in the franchisor's home state if it is different than yours. Should a dispute arise, you'd have to travel to that state for arbitration hearings.
• What criteria does the franchise use in selecting franchisees? Do they do any screening? Or, do they seem more interested in getting your franchise fee?
• Does the franchise use high-pressure sales techniques to get you to sign on the dotted line?
• Do you like the people you are dealing with?
• How big is the market for the franchise's products or services in your area and how much competition is there now?
      

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