But before you take the plunge, make sure your due diligence includes interviews with existing franchisees who can say, “Been There, Done That.”
We strongly agree with an Entrepreneur.com post we spied, “Interviewing Existing Franchisees,” and subtitled “When investigating a franchise, don’t forget to speak with franchisees already in the system to get the real scoop.”
Just as we happily share our vast point of sale experience and expertise with startup owners in order to help them make the best decisions from the very beginning, we at Sintel Systems are happy to share articles and commentary about the perceptions and reality of the risks involved in making this career change.
“Your most valuable source of information on any franchise system is the existing franchisees,” writes Jeff Elgin in the Entrepreneur.com report. “To get the most out of your contacts with franchisees, it’s important that you focus on the right topics and know how to spot the ‘red flags’ that might appear.”
Here are many of the highlights of the Entrepreneur.com post:
• Find a sufficient number of existing franchisees to get a sense of the prevailing attitudes of the group, both happy and unhappy. You may also want to contact ex-franchisees to understand why they decided to leave the system. Elgin notes that the Uniform Franchise Offering Circular (UFOC) must disclose any franchisee who left the system in the past year.
• Entrepreneur.com lists principal areas to investigate in the course of your franchisee contacts:
– Find out how well the Initial Training Programs did in preparing franchisees for opening and running their new business. “If you hear that the franchisees had many issues they were unprepared to address, that’s a huge red flag,” they write.
– Find out how the franchisor performed in terms of Opening Support; the process of getting the first unit open and operating. Determine the levels of assistance in site selection, lease negotiation, construction and design, financing, permits and any other factors unique to getting the business up and operating.
– Determine the effectiveness of the franchisor’s Ongoing Support, in terms of helping franchisees deal with the problems that come up in the course of business once their unit is operational. “If there is no support to help the franchisee deal with changes in the marketplace on a long-term basis, that’s cause for concern,” Elgin writes.
– Determine whether the franchisees are happy and supportive of the way the franchisor handles Marketing Programs, typically the area where you’ll find the most complaints in any franchise you research.
– Does the franchisor leverage the buying power of the total system to get discounts on supplies and inventory beyond what an independent operator could achieve? If the franchise is doing an effective job in using its Purchasing Power, that advantage alone can offset much of the fee cost associated with being a franchisee.
– Determine how the franchisees feel in general about their Franchisor/Franchisee Relationship. Look for a franchisor who is supportive, caring, focused on their success, responsive, effective, organized, trustworthy and has values as an organization that are consistent with your own.
– A UFOC may offer a wide range for total initial Capital Investment, so use your franchisee discussions to create a better estimate, based on their actual experience, of how much capital you need to be successful in this franchise. Elgin adds, “It’s also valuable to ask something like, ‘Knowing what you know now, what changes, if any, could you have made to significantly lower your opening costs?'”
– Entrepreneur.com says it’s critical that you have a strong sense of just where the average unit is in terms of Earnings and how long it took to get to this point. And be sure to consider the range of answers.
• “It’s always a good idea to bring up the subject of earnings as the last topic in your franchisee visits,” Elgin writes. “Most people are reluctant to discuss their income with strangers, and you’ll find the franchisees are more willing to cover this subject after you have spent some time visiting with them.”
• “If you are simply not able to determine these answers to your satisfaction in your research, do not settle,” Elgin writes. “This is a huge red flag, and you need to tell the franchise company that such a lack of information will cause you to decline the franchise if they can’t help you get the answers you need.”
Read the full Entrepreneur.com post here.
For more insights into the franchise-seeking mindset, check out our related posts, The Baby Boomer Franchising Boom, Finding A More Perfect Union, and Asked and Answered – 107 Franchisee Questions for Franchisors.
Before you make your franchise move, consider calling Sintel Systems for a free phone consultation to help weigh and understand your point of sale options. We serve as a franchise incubator for clients across the retail, restaurant and service industries, forming lasting partnerships with our clients that you simply can’t get from a reseller.
If you are interested in learning more about Sintel’s point of sale systems and how our knowledge and support can impact your future success, call us for a complimentary phone consultation.
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