In Business there are No Guarantees and, Yes, Franchises do Fail

Posted on June 10, 2009 by Charles Internicola

Every once and a while I get comments to posts on this blog that I refuse to publish.  These are not comments that are critical of my posts  (frankly, I appreciate critical comments that offer informative and different viewpoints) but rather generalized comments by individuals who are just looking to attract attention to a franchise or business opportunity that he or she is attempting to sell.  What bothers me the most is that these "comments" almost always involve an erroneous (and almost fraudulent) sales pitch where the prospective business purchaser or franchisee is "advised", basically, that franchises don't fail.  These improper and erroneous sales pitches, incorporate the following theme:

During tough economic times you should buy a ______________ franchise because the chances for failure are much lower with a _________ franchise than starting a business from scratch because you will benefit from a proven system.

While there are many benefits to franchising (benefits that I value and believe in) the reality is that, like any business, franchises do fail and that not every franchise opportunity is the same.  That is, there are many franchisors that possess neither a proven track record nor a tested business model. The key for the prospective business purchaser and franchisee is to find the right business model for you and, when purchasing a franchise, to be selective and find the right franchisor, that is a franchisor with a tested and well established model.  Good franchisor's are out there but you must do your research, speak with qualified franchise advisors (they are out there) and consult with a franchise lawyer to review the FDD and other information before you signing any agreement or pay any money.

The information is out there, but you must be an "active" purchaser and discount sales pitches that "guarantee success".  In business there are no guarantees.

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3 Initial Questions that You Should Ask Existing Franchisees before Buying a Franchise

Posted on June 7, 2009 by Charles Internicola

The purchase of a franchise represents a substantial investment that will have longstanding implications for both you and your family.  Prior to selecting a franchise and deciding to move forward, you must engage in an active "due diligence" evaluation of the franchise system and determine if its is right for you.  As discussed in "Contact Existing Franchisees before Signing a Franchise Agreement" existing franchisees are excellent sources of information when evaluating a potential franchise investment.  Three "initial" questions that you should be asking existing franchisees, include:

1.  Were you Satisfied with the Franchisor's "Pre-Opening" Training and Support?  One of the advantages of purchasing a franchise, in theory, should be the support and training provided by the franchisor.  The training and support that you receive prior to opening your franchise will be critical to launching a successful franchise. If current franchisees are not satisfied with the pre-opening training and support provided buy the franchisor, seriously question whether this is the right franchise for you and speak to your franchisor lawyer about adding specific training guuarantees to your franchise agreement should you decide to go forward.

2.  Are you Satisfied with the Franchisor's "On-Going" Training and Support?  While many franchisees open their business to a successful launch and impressive sales, on-going support is crucial.  A good franchise system is characterized by constant communication and support between the franchisor and its franchisees.  If current franchisees are not satisfied with the on-going support offered to them, again, you must question whether or not this is the right franchise for you.  Certainly raise this issue with the franchisor's sales people and your lawyer.

3.  Do the Numbers Make Sense? In other words, after paying royalties, advertising fees, product costs and operating expenses does the business earn a profit?  This is an apparent and critical question that too many prospective franchisees fail to consider and evaluate. When focusing on this issues ask as many questions as possible and speak to as many franchisees as you can.  Gather information and then discuss this issue with both your business accountant and franchise lawyer.

In addition to these initial questions you should have many others focused based on the particular franchise that you are considering.  I suggest that you write down a list of your expectations and then - prior to signing any franchise agreement - seek out and obtain as much information as possible to determine whether or not the franchise that you are considering is right for you.  Your decision should also be based on a candid discussion with your franchise lawyer and a thorough evaluation of the franchisor's disclosure documents.

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