Tackling the research process one item at a time
- Wednesday, May 18, 2011
Before investing in any small business opportunity or major expense, individuals are encouraged to do research with all due diligence by asking questions, meeting with professionals and evaluating their options. Franchising is no different, and prospective franchisees have a wealth of resources at their disposal to help them make the right decision regarding a franchise opportunity.
While the sheer size of the industry, number of financial documents and complexity of legal language inherent in the process can prove daunting, Franchising.com blogger Paul Segreto suggests asking very specific questions to avoid confusion, especially when it comes to paperwork such as the Franchise Disclosure Document.
When examining the FDD, Segreto advises prospective franchisees to analyze line-by-line, highlighting where problems may occur and where items require further clarification. "It's a can't-miss road map," he adds.
Furthermore, franchises are required by law to provide franchisees with this document before an investor pays one cent. This means that even if you still have five or even 10 potential franchise systems on your list to research, you can request an FDD for each, free of charge.
However, the FDD is not the only way to obtain information about a franchise opportunity, nor should it be the sole resource a franchisee uses to make a decision. Prospective buyers should question a system's founders if possible as well as its executive and support teams.
"Get to understand the history of the concept, the passion of the founder, and the experience of the executive and support teams. Have they actually worked in a location? Have they owned a business before? Kind of hard to provide guidance if they haven't," Segreto writes.
Franchisee, Segreto explains, will need to question franchisors about the range of fees, assistance in finding a location and the general system culture. For the latter item, turning to current franchisees may provide even more insightful information for prospective buyers, as they can answer concerns about costs, problems and trends in often a more forthright manner.
In addition to researching numerous units, prospective franchisees should turn the spotlight on themselves to determine whether they are prepared to succeed in the industry. As a businessperson, what makes a franchisee tick? What are his or her hobbies and interests? Alternatively, what are the worst things about his or her current job? Answering these questions truthfully will help franchisees take one big step closer to finding the right franchise opportunity for them.
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