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6 Tips for Evaluating a Franchise Opportunity

Charles Internicola

by Charles Internicola
National Business and Franchise Lawyer

Date: 11/15/2010 | Category: Buy a Franchise | No comments

In a recent article‚ "Things That Help Identify A Good Franchise Opportunity"‚ on NUWireInvestor.com Don Sniegowski goes over some useful signs to better assess the viability of a franchise opportunity that you may be evaluating.

Don Sneigowski mentions some key points that should be carefully considered by prospective Franchisees when considering a Franchise opportunity.  These "points" include:

  • Franchise metrics – Consider things such as how many stores were sold but are not opened‚ the franchise loan default rate for franchisees not paying back SBA backed loans compared to other companies in the same type of franchise‚ and franchisee satisfaction which can be figured out by franchise surveys or by speaking with franchisees directly.
  • Checks and Balances – Find out if there is an independent franchise association with elected offices that the franchisees can participate in or if there is a franchise cooperative where elected franchisee representatives are responsible for system wide functions such as advertising purchasing‚ etc.
  • Entrepreneur Development – Check if the franchise has a franchisee to apprentice mentoring system in place. Also‚ see if the franchise has a franchisee to franchisee mentoring system.  These are things that will help you as a new franchisee get the help you need when buying a franchise. 

Additionally‚ Mr. Sneigowski identifies certain "red flags" that prospective Franchisees should keep an eye out for when purchasing a franchise:

  • There aren't many – or any – company owned stores – A franchisor who has company owned franchise locations often has a better understanding of the franchisees needs because they know firsthand how their own stores are operating.
  • Young and growing super quickly – Growth is good but growth that is out of control can cause serious problems when it comes to the franchisors ability to support franchisees. Controlled franchise growth is a sign of a good franchise opportunity.
  • Negative information on the internet -The internet is a very useful source and can be useful for finding out positive or negative information about the franchise you are considering purchasing also. Blogs and forums are very good ways to get an idea of opinions from people who are either satisfied or dissatisfied with the franchise you are looking for. 
  • The franchise doesn't do business in any franchise registration states – This can be a major red flag if the franchisor does not want to do business in any franchise registration states because that mean that the franchisor does not want to file his/her Franchise Disclosure Documents ("FDD") with the state and have them reviewed by the state. They may be trying to cover something important up.
  • There is a lack of business and franchise experience with the franchisor's officers
  • The franchisor is trying to cover up information about prior lawsuits – If you have access to Lexus-Nexus or WestLaw legal databases it is always in your best interest to do a little research about the franchise and its prior legal history. Prior lawsuits must be listed in the FDD for the franchise. If you go through the FDD and find that there are some lawsuits left out of their documents when compared with a legal database it would probably be in your best interest to continue on your search for a franchise elsewhere. 

The points raised by Mr. Sneigowski are excellent and deserve careful consideration by anyone considering the purchase of a Franchise. For more information about choosing a franchise opportunity request a complimentary copy of Charles N. Internicola's book "An Entrepreneurs Guide to Purchasing a Business or Franchise".

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