Assessing a Franchise Opportunity

In this current economic situation franchisors are even more hungry to sell franchises. Franchise prospects need to be extra choosy. This story from the New York Times is a concert ensemble from some of the voices in the industry that I greatly respect for their honesty. I think we made beautiful music together but I'll let the reader decide. Here are some questions every would-be franchisee should ask.

Who are you? "Nick Bibby, a franchise consultant in Shreveport, La., said his first advice to clients comes from an ancient Greek aphorism: “Know thyself. Decide first if you’re made for entrepreneurship.”Unfortunately, many people become enamored with the dream of business ownership and fail to ask simple questions that determine whether franchising is a good fit. “People don’t want their dreams shattered,” Mr. Bibby said. “People don’t want to know the truth.”

Hire Expert Guides: Is the Pain Avoided Worth the Extra Money Up Front? “A prudent businessman will start this process with a franchise dream team — a financial adviser you trust, a legal adviser you have confidence in and a business broker who’s working for you,” said Robert Purvin, chief executive of the American Association of Franchisees and Dealers. “You also need to start with a psychological adviser to identify what type of business makes sense for you.”

[Sniegowski says] “Once they’ve [franchisor sales persons] got you in their sights, they’re under a lot of pressure to sell that franchise. It’s a buyer’s market, and if you’ve got money right now, you can pick and choose what you want. And you better be very choosy.”

Look Realistically at Who Is The Franchisor: Mr. Bibby, the franchise consultant, puts it bluntly: “Most — I’ll say a minimum of 70 percent of all franchises — are not worth the powder it would take to blow them up.”

“Not all franchises are created equal,” said Jim Coen, president of the Dunkin’ Donuts Independent Franchise Owners. “It’s incumbent on the franchisee to really drill down and figure out the potential to make money. Sometimes potential franchisees fall in love with the concept and find out too late the business model is not sustainable”

What Do Other Franchisees Say? Talk to other franchisees. Hang out in their businesses and observe...  find a chain with a franchisee association — there are only a few hundred in the United States — make it a resource... Use the Web. In a world of social networking, it’s not hard to find out what other people are saying about a franchise.

Can You Afford It? Many first-time franchisees make the mistake of underestimating working capital requirements and buy a franchise at the upper range of their affordability. One old adage bears repeating: It will cost twice as much and take twice as long.

“It’s not uncommon at all for a store to open and still be struggling a year or two later,” said Peter Birkeland, a small-business consultant in Chicago and author of “Franchising Dreams” (University of Chicago Press, 2004). “You have to have a lot of working capital.”

What Are The Legal Terms? Can You Negotiate? Mr. Birkeland, the small-business consultant, said that in the current economy, franchisees should be emboldened to negotiate on items like franchise fees, larger territories or deals on multiple units. “I would push hard for the bargain,” he said. “A franchisor may put on a stern face and say, ‘Take this deal or we’ll find someone else’ — I wouldn’t believe it before, and I definitely wouldn’t believe it now.”

A special thanks to reporter Kermit Pattison of the NY TImes for a great article informating would-be buyers on how to begin the process of assessing franchise opportunities. I am marking this as one of the classics.

Do any of you have additional things to build on these points?