The quality of your research is key to success Get the help you need!
The lightbulb goes off and you have the solution to the nine-to-five doldrums: Start your own business. And you’ve been planning your big career move ever since. Unfortunately, you’re still at the same desk, trying to come up with the perfect idea, some new undiscovered niche in the marketplace.
With that kind of thinking, you’ll be daydreaming at your frustrating job from now until eternity. There is no such thing as the perfect new idea. Who would have guessed a pet rock would catch fire?
Rather than look for the next best, new thing, you’re better off figuring out how you can add your unique talents in a well established market. One way to get going without having to invent everything from scratch is to match yourself with a good franchise.
While not all franchises are created equal, you can figure out which ones you should consider and which you should cross off the list.
I call it the one-two punch. 1) consult a franchise coach for referrals to franchise companies with a good track record of helping franchisees succeed, and 2) Read the franchise disclosure document (FDD), which will provide you all the information you need to complete a thorough due diligence. Here are a few pointers to help you get through what can be a long complicated document.
How to Navigate the Franchise Disclosure Document
The FDD consists of 23 Items. Focus most closely on:
Item 1: The Franchisor
You’ll find the franchisor’s business history, where it is incorporated, and a general description of the business, including whether it has operated under other names.
Item 3: Litigation
It’s best to stay away from companies that have a history of litigation – especially if the litigation is with their own franchisees.
Items 5-7 Initial Fees and Investment Costs
You can learn exactly how much this operation will cost you. The breakdown will include your initial fees, royalty fees, estimated wages and other labor costs, training, estimated lease payments, estimated costs to furnish your office or store, signs, advertising insurance, etc. Remember, every new business has a ramp-up phase, and you have to be prepared to cover your living expenses during that period.
Item 12 Territory
Some franchisors offer exclusive territories. You want to be sure that your market will be sufficient to allow you to make a good income. Item 19 – Earnings Claim
Not a required item, but be aware that for those franchisors who do provide estimates, they may be affected by regional differences and other factors.
Item 20 – List of Outlets
This is by far the most important item because it gives you the ticket to your best resource for information: the franchisees. You should interview as many as possible to learn how their business has worked out.
Item 21 – Financial Statements
You can learn the financial condition of the company by reading their audited financial statements for the most recent three fiscal years. I recommend you have an accountant review these for any franchise you’re serious about purchasing.
When you get close to choosing a franchise, I you will want to consult an attorney, as well as an accountant to make sure the franchise agreement is favorable to your long-term success. Then by all means get started and recharge your career!
Ready to make your dream of becoming an entrepreneur come true?
Get your free evaluation today! Contact Dan Citrenbaum to help you create the career you’ve always wanted. With a quarter century of experience as an entrepreneur and coach, Dan began the latest stage of his career in 2010 when he bought a franchise — which he calls “the best decision I ever made.” To find out how to start your own business with a franchise or buy an existing business, call Dan at firstname.lastname@example.org or at (484) 278-4589.
© Dan Citrenbaum 2019