How To Buy a Franchise

How Do You Avoid Double Talk When Interviewing Existing Franchisees?

One of the most important steps in the due diligence process of buying a franchise is to interview existing franchisees. I recommend that you interview as many as possible and that you visit at least one and spend at least part of a day exploring the franchise opportunity. After working in a franchise for a day, or a weekend, you might decide it’s not really for you!

Franchisors are usually eager to encourage prospects to speak to franchisees and sometimes they will attempt to direct the process, even though that’s technically against the law. A franchisor can’t tell you who not to talk to. That doesn’t mean the franchisor won’t try to influence who you talk to.

Who should you interview?

When you receive the Franchise Disclosure Document, you’re armed with a list of existing and past franchisees and you should contact them randomly as well as purposely. For example, you might call every 10th franchisee, and in addition, you might find out which franchisees are similar to you in both background, skills, and size of market, and purposely interview them.

My list of 92+ Questions To Ask Before You Invest In A Franchise will be helpful to you . . . it’s been downloaded (or mailed) to countless thousands of franchise prospects through the years, and distributed at many expos, too.

Ask the same questions of all franchisees

It’s a good idea to ask the same questions of all the franchisees you interview — you’re not going to ask 92+ questions, but there will be at least half a dozen that you’d want to ask each franchisee. For example: Given the chance to buy the franchise again, would you do so?

Expect to get double talk

In spite of your best intentions and planning, you’re going to get some double talk from franchisees. Experts like Jeff Johnson at the Franchise Research Institute refer to it as “false positives” and “false negatives.”

It’s difficult to avoid double talk.

Franchisees often suspect that their franchisor is paying attention to what they say to prospective franchisees. Franchisors have been known to ask prospects, “Who told you that?” when prospects report that they heard something negative about the franchise or the franchisor. If a franchisee thinks their feedback will get back to the franchisor, they’re not likely to tell the truth, especially if the truth is negative. if they think there will be consequences for telling the truth, they’ll respond to a question with a “false positive.” Instead of telling it the way it is, they’ll fudge a bit to say that something is “pretty good” or “okay” when it’s actually not.

Perceived competition produces double talk

On the other hand, some franchisees want to avoid what they perceive to be competition from other franchisees. So when a prospect calls a franchisee in Detroit, for example, and the franchisee thinks the prospect wants to open a unit in a nearby market, the franchisee is likely to respond with “false negatives” about the franchise opportunity. They’ll do everything they can to dissuade another franchise from opening in their territory.

You really can’t do much about the double talk, except interview more than just a couple of existing franchisees. When franchise prospects tell me that they talked to one or two franchisees it always makes me nervous because they’re limiting their ability to get to the truth. If you studiously interview multiple franchisees, i.e. a dozen, and you track their answers to your specific questions, you can improve your chances of cutting through the double talk.

One way to avoid the double talk

Jeff Johnson will tell you that you can avoid the double talk by investing in a world-class franchise company. And he knows who they are because he’s identified them after surveying their franchisees. His survey includes almost two dozen questions that will filter out the double talk and get to the truth about a franchise opportunity.

Unfortunately, most franchise companies have not submitted to Johnson’s survey. Many are fearful of what their franchisees would report. But there are currently 21 franchises that have won the designation of certified world-class company. Now that’s not reason enough for you to buy one. You should buy one only after you’ve done your due diligence and determined the franchise company makes sense for you. If it comes with Johnson’s world-class designation, you can feel that much more confident that you’ve avoided the double talk.

. . . I addressed these issues in greater detail at the Behind The Numbers blog, posted on the site of the Franchise Research Institute.

Five Questions You Should Ask Franchisors About Financing; A Franchisor That Isn’t Involved In Financing Probably Isn’t Selling Franchises!

As you continue your search for a franchise to buy, one important aspect may be financing. Whether or not you get that financing may depend on your prospective franchisor! Of course, you’ve got to qualify for the financing, but today, franchisors can help expedite loan approvals for their prospective and existing franchisees. Unfortunately, only a few franchisors seem to understand the new role franchisors must play in franchise financing, so while you’re shopping for a franchise, you must now ask what the franchisor is doing to help line up financing. Lenders now expect franchisors to get involved in the lending process; a requirement that wasn’t the case just a couple of years ago.

Impressively, one franchisor has tackled this issue by appointing a senior executive to build relationships with lenders. John Teat is the managing director of franchise finance for Primrose Schools. I recently interviewed him for the Texas Franchise Leadership Tele-Forum. Here’s what he recommends that franchisors do. Find out how well your franchisor meets these criteria!

1. Today, franchisor/lender relationships are absolutely critical. While it’s location, location, location in real estate, it’s relationship, relationship, relationship in franchise financing. It’s who you know, and the franchisor that doesn’t have a network of bank and lender relationships isn’t in a position to help franchisees get funding. . . . Who are the franchisor’s lenders?
2. The franchisor should set up an initial meeting with the lender and plan to ask questions about the lender and the bank. Learn about the lender’s credit culture. What’s their “put thru” system like? Lenders are impressed by franchisors who want to know about their needs. . . . What can the franchisor tell you about lenders who will consider your application for funding?
3. Franchisors must ask for the lender’s assistance. Create a team spirit with the lender and work collaboratively to put together a funding plan for your brand. Get the lender involved in your business! Invite the lender to your office; to your conferences. . . . Can the franchisor introduce you to lenders?
4. Once the franchisor has a program in place with a lender, it’s important to send the lender only prospective franchisees and existing franchisees that meet the criteria for the program! The worst thing the franchisor can do now is to send the lender a candidate that doesn’t qualify. . . . What are the criteria for qualification? Has the franchisor explained them to you?
5. Franchisors must stay on top of the “put thru” system with the lender. Remain involved. The lender will look to the franchisor for help. . . . What can you expect the franchisor to do to help facilitate this process for you?

Loan Or Lease? You May Need Both To Buy A Franchise; It’s Important To Know Your Options

Adapted from Help Your Banker Say Yes! What franchisors and franchisees need to know to get financing today, by John P. Hayes, Ph.D. with Geoff Seiber.

If you’re investing in a franchise that includes equipment, such as a POS system, or fryers and ovens for the kitchen, or if you need a vehicle, such as a van or panel truck, you may be well advised to lease rather than to take out a loan. Leasing equipment is the equivalent of “renting” the equipment, which means that you won’t take money from your working capital to buy the equipment. With a lease, you set up a monthly payment, and at the end of the lease you can acquire the equipment, or upgrade it and roll the package into another lease.

The advantages of a lease include:

• Preserve your working capital. Nowadays it’s important to keep cash on hand rather than use it to buy items that could be leased.
• Claim a tax benefit. Section 179 of the U.S. Internal Revenue Service Code allows you to write off a percentage of a monthly lease payment. The law frequently changes, so it’s important to consult with a tax advisor before claiming this benefit.
• FICO requirements are usually lower for leasing.
• There are no prepayment penalties.
• You can choose the terms: 24 to 60 months.
• If you’re “corporate worthy” (you’ve been in business at least five years) you may not have to sign a personal guarantee.
• If you own an existing business and you’re opening a second unit of that business, you may be able to use the first business to guarantee the lease, and you won’t have to sign a personal guarantee.
• Closing costs are minimal: almost always less than $500.

There are few disadvantages to a lease, although no one will argue that if you’ve got the money, and can afford to spend it, then it’s less expensive to buy products outright and save the interest. Few people are in that economic situation, however.

Securing a lease may be faster than securing a loan – especially if you’re leasing an equipment package, software, a POS system, or a vehicle that’s recommended by a franchisor that’s well known to the lender. But you will still need to provide personal financial information and provide a variety of documents to the lender.

Join This Coleman Webinar:
The New Normal For Franchise Financing

Wednesday, March 17, 2pm ET. Join Bob Coleman, John Hayes, Geoff Seiber and Bob Rodi to learn more about how you can get the funding you need now to buy a franchise. Register at Coleman Publishing.

Former Franchisor: “No Heart? . . . They Can’t Succeed. . . . Help Them Out Of Your Franchise.”

He doesn’t want to be identified — he’s the founder of one of the most profitable restaurant chains in the world — and he doesn’t even have to think about the answer to this question:

Why is it that some franchisees do well, while other franchisees in the same brand fail?

“Heart” he answered.

By my look he could tell that I was waiting for some elaboration.

Some elaboration, please?

“Heart” he said again, a little louder.

“Okay. . . . what about heart?”

“They have it or they don’t,” he said. “Most don’t.”

Again I waited. For a guy with so much experience, he didn’t seem to have much to say. At least not much to say on this topic, even though he said he wanted to talk about it. He wanted to help people save themselves from failure in franchising.

I took a drink of my coffee. He drank more of his.

Can you predict ‘heart’?

I decided to take another approach: “How do you spot the people who have heart?”

“You can’t,” he said.

I stared.

He added, “Nine out of ten people talk about it, but they can’t deliver.”

Another drink of coffee. He was loosening up now!

Those with ‘heart’ don’t whine

“You don’t know which franchisees have heart until things really get tough and they don’t give up. If they cry and whine and blame other people, you’ve got your answer. There’s not much chance those franchisees will ever succeed, and you’d be wise to help them out of the system. I hate to be crude, but if they dump their (crap) all over you, they’re going to fail.”

There you have it: The secret to a franchisee’s success from a guy who actually knows.

Do you have heart?

It’s another way of asking: Do you have passion?

Remember, my subject said most people don’t have it. Are you sure you do?

It would be good to be sure before you invest in a franchise. Because it takes heart to succeed!

eBook Coming Soon:

Help Your Banker Say Yes! How you can secure financing to buy a franchise. Reserve your personal copy now!

Franchise Companies Tire Of Sluggish Economy: Expect More To Provide Financing In 2010

One of the nation’s premier franchise companies has decided not to wait for the economy to recover to begin selling more franchises. Money Mailer is taking matters into its own hands with a revolutionary finance program that will allow qualified candidates to join the franchise network for a mere four-figure investment!

How many more franchisors will take this same approach? Dozens! Particularly if they want to start selling franchises again in record numbers. If you’re planning to buy a franchise in the next several months, you may benefit from a similar finance program.

Record sales in 2009

Franchise financing isn’t anything new — The Dwyer Group has provided it for several decades, which is part of the reason the company will sell more than 300 franchises in 2009. But now more franchise companies will provide financing because they’re tired of slow-growth and dependence upon the U.S. Government to kick the economy back into gear.

Jaws fell open

Jenkins championed the finance program at Money Mailer and was thrilled when the company announced it at a franchisee convention earlier this month. “When our franchisees heard about it, I’d say there were about 300 jaws that fell open. We’re all very excited about it.”

Excited because he anticipates the company’s lead flow to multiply times four. In less than a week after the finance package was announced, Jenkins said he had received more referrals from existing franchisees than he normally gets in a year! Once the public learns about the program, inquiries will skyrocket.

A $7,500 down payment

While a Money Mailer license costs $37,500, qualified candidates will now be able to join the franchise company with a $7,500 down payment. Money Mailer will finance the balance and not require payments from the franchisee for two full years. The company will also provide a “launch package” that includes $20,000 in production credits paid to the new franchisee in the first year.

Until the economic downturn, franchise candidates frequently used a home equity line of credit to finance a Money Mailer franchise, but that option ended many months ago. “We had to control this situation (the lack of financing) to ensure our growth,” Jenkins explains, “and our management team decided to put this finance program in place. It will make a dramatic difference in 2010.”

Indeed it will, just as similar packages will make huge differences for other franchise companies providing they are bold enough, and financially stable enough, to provide financing to their qualified candidates.

eBook Coming Soon:

Help Your Banker Say Yes! How you can secure financing to buy a franchise. Reserve your personal copy now!

No Excuses! Get The Answers To These Three Questions Before You Buy A Franchise!

“Not long after I lost my job, a friend told me about this franchise. I looked into it and bought one.”

It may surprise you, but that’s how — and why — many people buy franchises!

Here are some other reasons that I’ve heard when I’ve asked people, “How’d you decide to buy a franchise?”

Crazy Excuses

“I decided I wanted to work for myself, not someone else.”

“A franchise broker showed me a half dozen concepts and I liked this one best.”

“It’s the ‘hottest’ business to be in right now and I wanted one.”

“My father told me it was a good business and he put up the money.”

“I had money in my 401k that I could rollover into my own business and I decided now was the time to do it.”

“One weekend I went to a franchise show, where they had many different businesses displayed, and I got to talking to a franchisee of this company and she told me that I should buy one. I did some research and decided she was right!”

And here’s the point

I could go on . . . but what’s the point?

Well, the obvious point to many readers is this: Those are all wrong reasons for buying a franchise. In fact, those aren’t reasons, they are crazy excuses. And they almost always lead to grave disappointments.

When people buy franchises for the wrong reasons — excuses or not — they usually live to regret it. Often times, it wasn’t the “hottest” business, and even if it was, the franchisee wasn’t cut out to own a business, with or without daddy’s money! Often times, these businesses fail and the franchisees lose their investments. Google will lead you to countless ugly stories about franchise failures!

3 questions you must answer

If you want to avoid becoming a sad statistic in franchise history, there are three questions you must positively answer even before you investigate a specific franchise concept. In fact, answering these three questions can keep you from spending time and resources looking at the wrong franchises, and they will ultimately help you invest in the right franchise, providing that buying a franchise is the best thing for you. (It’s not for everyone).

Frankly, it amazes me that so many people buy franchises without knowing these three points of information! But apparently, no one told them this information is important. (Or, maybe they’re okay with using crazy excuses!)

So here we go:

Know the success profile

1. Do you know the profile of a successful franchisee?

Do you know the values, skills and behaviors of successful franchisees? They’re not necessarily the same as the traits of a good employee, for example, or a good vice president or CEO. Just because you excelled in your Fortune 500 job, or you were Teacher of the Year, or a real estate tycoon, it doesn’t mean you’ve got what it takes to become a successful franchisee.

Oddly enough, many (and maybe most) franchisees can’t confidently explain the profile of a successful franchisee in their own franchise network! Some think they know it, but they’re not sure. Others say they know it, but they can’t prove it. Only those who are successful can be sure they’ve got it, but that doesn’t necessarily mean they can explain it!

Valuable advice: Even before you think about writing a check to pay a franchise fee, you need to be absolutely certain you can describe the profile of a successful franchisee in that specific franchise network.

Be sure you got it!

2. Do you possess the profile of a successful franchisee?

Do you have what it takes personality wise?

Do you have the values, skills and behaviors of successful franchisees?

Caution: Most people do not!

If you say you do, what makes you so sure? . . . And just to push the point — because, after all, we are talking about you risking tens of thousands of dollars when you buy a franchise — why should anyone believe you?

Better yet: Why should a lender believe you? (It wasn’t true a couple of years ago, but today your lender will want to be convinced of your chances of success before approving your loan).

And now the obvious question: Why should a franchisor believe you?

Obvious but, sadly, not necessarily part of the franchise buying process. Many franchisors won’t care about your profile. They won’t ask about it because they don’t know it’s important. Or, they just need to sell franchises — it doesn’t matter to whom. Even some franchisors are okay with crazy excuses.

Match it to the business

3.  Does your profile match the profile of the successful franchisees in the business you intend to buy?

This question is the most important of all. Let’s say you’ve identified the profile of a successful franchisee and you know you’ve got the same profile.

But for which franchise?

There are at least 2,000 — maybe 3,000 — franchise companies in North America. They’re all different. They don’t all require different profiles, but many do. For example, a successful franchisee in the hair salon industry, just to pick an industry, may fail in the hospitality industry, or the lawn care industry, just to pick two more. He may fail because he doesn’t have what it takes to succeed in that different industry. (Personality is by no means the only requisite to success — there are other considerations, including access to capital, location, and common sense, to mention a few).

Another ugly statistic

There are more than 75 different industries that use franchising as their method of distribution. So matching a success profile to an industry, and ultimately to one franchise company, is critical. Miss this and you’ll likely become one of those ugly franchise statistics.

Critical question: If you can’t define your own success profile and know that it matches the success profile for franchisees in a specific franchise company, why would you invest in that franchise?

I hope you said you wouldn’t!

Getting the answers you need

By now you may be asking: How do I find out which success profile matches which franchise company?

Answer: Ask the franchisor!

When you talk to a franchisor, and you’re about to make a buying decision, ask the franchisor to show you, or explain to you, the success profile for his or her top producing franchisees. Then, ask for the names and profiles of the top ten franchisees. You want to talk to them!

Ask the franchisor: What is the dominant personality profile of your top ten revenue-generating franchisees?

You’re not asking for an earning’s claim, so don’t let the franchisor duck your question. You’re not asking for revenue amounts, you’re just asking for a list of the top ten producers. You’re asking for non-financial information, which is absolutely essential for you to determine if you should invest your money in this franchise!

Reality: The franchisor may not be able (or may not want) to help you. As unlikely as this seems, many (maybe most) franchisors simply can’t provide the information you need! Some will tell you that profiles are not important, they don’t matter, and the company does not profile its franchisees. Others will say they’ve never profiled their franchisees and — they won’t tell you this — they don’t want (or they can’t afford) to invest the money to do so! Some won’t share the information with you because it’s not favorable to your buying decision!

Now what?

Ask those who know

Ask a company that profiles franchisees! Dynamic Performance Systems and Franchise Navigator are two that I suggest you check out. The latter features a new tool called Connect Me, which does the profile matching for you! Last I checked, more than 14,300 prospective franchisees had used this service!

More and more franchisors — especially those that care about the welfare of their franchisees (and the long-term viability of their brands) — are profiling their franchisees, and they will provide the answers to these critical questions because prospective franchisees, like you, are getting smarter. You’re demanding the answers. And you’re not going to settle for crazy excuses!

Demand to get what you need to make a good buying decision — the franchisors that want to sell franchises will comply with your requests.

Photo image by: Shmoomeema

If The Franchise Doesn’t Come With A Marketing Machine, It’s Not For You. Keep Shopping!

Marketing machines . . . that’s what separates successful franchisees from failing franchisees. As you’re evaluating franchise opportunities, be sure to look only at those that come with a marketing machine!

Major issue today: marketing!

I frequently speak to franchisees who represent many different businesses, and the overriding concern today among those who are failing, or struggling, is marketing.

• Where are the leads?
• Where are the customers?
• How do I get more customers?
• How do I keep my customers?
• How do I get customers to spend more money in my business?

Those are the questions and issues facing far too many franchisees today, which is why marketing is the most important component for you to evaluate prior to buying a franchise.

Some franchisors haven’t figured it out

Unfortunately, many franchisors either don’t know the importance of producing a marketing machine or they can’t afford to. Sometimes, in fact, the franchisor hasn’t figured out a marketing scheme, and their franchisees are in the worst situation. The saving grace may be that all these franchisors aren’t selling many franchises these days! Not all bad when you consider that they’re likely only to produce more unhappy franchisees.

Franchisors are easily distracted

It’s easy for franchisors to overlook the importance of marketing to their franchisees because there are so many other things that compete for a franchisor’s time and money: Selling franchises (well, duh!), training and support, site construction, managing the corporate team, funding the business, dealing with vendors, etc. When franchisors forget (and some just don’t know) that marketing propels franchising — that nothing is more important than marketing, especially to a franchisee — they fail to live up to their responsibilities as franchisors.

Protect yourself by not buying their franchises!

You want a franchisor to invest in marketing

Franchising is in a mess right now because too few franchisors are marketers, and too few franchise companies are providing marketing machines for their franchisees. And things aren’t going to get better until franchisors begin to invest again in marketing.

Look for the marketing machines . . . they’re out there! Ask existing franchisees: How effective is the franchisor’s marketing machine? If the franchisee looks at you like you’ve got two heads, you know to continue shopping! Don’t believe anyone who tells you that everyone is struggling to sell franchises today. Not true. Franchisors with marketing machines are doing just fine, even in these troubled economic times.

If you expect to do just fine as a franchisee, only buy the franchise that come with a marketing machine!

Just Released: FranchiseMastermind Interview Series

As you consider buying a franchise, learn from the franchise masters! Dr. John Hayes interviewed several of the most successful franchisors. Find out how they created successful franchise systems — follow their advice as you seek a successful franchise of your own. Learn from Don Dwyer, William Rosenberg, Jim Amos, Jim Bugg, JoAnne Shaw and others! You can immediately download and listen to their interviews. Click here

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Giving Franchising A Bad Name. Meanwhile, Here’s One Less Franchise That Will Be Sold!

One of my subscribers who used to work for IBM recently asked if I’d meet him for coffee because he was thinking about buying a franchise. Since he’s practically my neighbor in Frisco, Texas, it was easy to get together, but he probably didn’t expect me to tell him what I told him!

After he lost his job, where he made a neat six figures, he posted his resume on a number of online career boards and one day he got a call from a franchise broker from New York. Brokers scan those listings, looking for out-of-work people who might be interested in buying a franchise. (For me, that’s a tough way to make a living, but to each his own, especially in a recession. I prefer listening to my subscribers’ stories and responding with stories of my own.)

Why not to buy a franchise

My subscriber explained to me, “The broker told me that jobs are impossible to find in my industry, and he suggested that I buy a franchise.”

I could spend the next several weeks writing the lessons that emanate just from that one stupid statement! (I’ll also refrain from telling you the name of the broker, for fear that more reputable brokers might rip out his voice box).

Surely no one is dumb enough to believe that if you can’t find a job your solution is to buy a franchise! (Reminds me of Philosophy 101. Because the Marlboro Man was cool we should all start smoking?).

“I like having a job!”

I couldn’t wait to ask my subscriber, “Do you want to buy a franchise?”

He said, “I like having a job.” In fact, he recently got a job, though it pays considerably less than his six-figures with IBM. “I’m more of a guy who likes to hang out on the beach with my family,” he told me. “We bought some land in Mexico some years ago thinking that we’ll eventually move there and live the good life on the cheap.”

To which I replied, “You don’t sound to me like a guy who should buy a franchise.”

And he said, “But the broker thinks that’s my answer!”

Uh-huh. For $15,000 I’ll tell you that’s your answer, too! (On second thought, I only jest).

Where are 6,000 franchise concepts?

“The broker (he actually used his name) told me his company (he mentioned a major brokerage name) has reviewed 6,000 franchise opportunities and boiled them down to 600 that are worth buying. They’re worth buying, he said, because these companies include franchisees that own multiple units and they succeed at least 85 percent of the time.”

At this point I wanted to rip out the broker’s voice box myself! Another half-dozen lessons emanate from that nearly criminal statement! (I really dislike people who give franchising a bad name and who create win-lose situations whereby they win a commission and the franchisee loses money).

Six thousand franchise opportunities? I’d call the International Franchise Association and ask them where all those opportunities are, but it would be a waste of time. They don’t exist. Six hundred that are worth buying? Well, maybe, but not for the reason the broker offered. It’s nonsense.

Here are 3 you should buy!

So my subscriber continued, “The bottom line from the broker was that I should look at three companies.” He told me the names, two of which I recognized, though he wasn’t familiar with any of the three. He added, “I reluctantly agreed to be introduced to those companies.”

Reluctantly because he wasn’t really interested! But folks in Frisco, Texas (with some exceptions) are kind, gentle, and cooperative.

“And what happened?” I asked, in my not-so-gentle voice.

“The first one called me and when I told him I want to work in this market, he said this market was already sold. He got angry that my broker was wasting his time. He asked me which other concepts the broker suggested to me and when I told him he told me that the second concept was a horrible business and that he didn’t know the third concept.”

Franchisors trashing franchisors

“What did you think about the salesman trashing the other franchise company?”

“I didn’t think he needed to do that,” said my kind and gentle subscriber. “I thought it was odd. But he told me that since he couldn’t sell me a franchise he would help me stay away from a franchise that has a horrible reputation.”

“Well,” I offered, “he wasn’t totally lying. That business has a rocky reputation, though some franchisees have been happy with it. . . . Did the other two companies call you?”

“No!” said the subscriber, somewhat shocked.

“Not a surprise,” I said. “I used to generate leads for franchise companies and not even half of the companies ever followed up on the leads. It’s just one of those odd things about franchise sales people.”

One concept the broker didn’t know

Eventually my subscriber told the broker that he wasn’t really interested in any of the three concepts, and he elaborated that if he’s going to buy a franchise it needs to be something that he can work from home. He then told the broker about a home-based franchise that interested him.

“But he told me that he never heard of that business and that start ups are too risky. He wouldn’t recommend that I buy it,” my subscriber explained.

“Of course not,” I said. “He’s not going to recommend that you buy anything that he doesn’t represent. He wants his commission. After all, he spent hours on that career board culling through all those resumes to find you!”

Who’s the broker really helping?

“Exactly,” said my subscriber, no longer as kind and gentle. “Which leads me to wonder why anyone would work with a broker? If they’re only going to tell you to buy businesses that will pay them a commission, how does that best serve me?”

I laughed. “Yea, with 600 companies supposedly out there that are worthy of your investment, it would be difficult for a broker to represent all of them!”

My subscriber had already demonstrated one way to shorten that list. He said he wanted to buy a home-based business. That eliminated at least 80 to 90 percent of the opportunities, leaving him with no more than 120 (assuming there were 600 to begin with!)

Why local brokers may be to your advantage

Major brokers typically represent a hundred-plus concepts, but they may not represent competitive concepts, and they may not represent the concept you really want to buy. For example, if it’s a regional concept, available only in your area, the broker may not even know about the concept, let alone qualify for a commission. And if you’re working with a broker that’s many states away from where you live and want to work, you’re at an even greater disadvantage (which is why I prefer my subscribers work with local brokers).

However, keep in mind that some good franchise concepts refuse to work with brokers, so you’ll have to contact those companies directly.

But in the case of my subscriber, the real story is that he doesn’t want to buy a franchise. He wants a job! A better job than the one he has now. He may have expected me to encourage him to buy a franchise, but in good conscience I couldn’t do so. As I’ve said to my franchise audiences for 30 years, “Franchising is not for everyone.” It’s definitely not an answer for someone who’d rather have a job, even if he can’t find a job.

IBM will hire again!

As we left our meeting, I said to my prospect, “Keep looking for that better job. IBM will hire again! And don’t listen to the broker when he tells you that it’s impossible to find a job in your industry. He’s already proven that he doesn’t know much about franchising, or he’s just not willing to share the truth about franchising. No reason to believe he’d tell you the truth about your industry, if he even knows anything about it.”

We shook hands and went home. He satisfied not to be buying a franchise. Me satisfied that I had saved a subscriber from making a mistake and franchising from another catastrophe. Come to think of it, I may also have lost a subscriber — who would read my stuff unless they were interested in buying a franchise?

Photo image by: K-1000

If Franchising Is Your Backup Plan, Please Go With Your Other Plan! Get A Job!

I’m afraid the remnants of the recession and sustained unemployment will lead people down a path similar to the one this subscriber told me that he may take. Without revealing his name, he wrote:

“I am between careers. I was laid off in January from a 27 year engineering career. I’m trying to juggle two possibilities at one time . . .” (1) interviewing for jobs “when they do come up” and (2) looking at franchise opportunities.

Franchising as the backup plan

“I am continuing to research franchises as, frankly, a backup plan. . . I’d definitely like to get your opinion . . . .” He went on to say that he’d like my opinion once he “identifies that franchising is the right path” for him and when he’s ready to look at specific opportunities.

He concluded, “I’m currently working with a local office of (a franchise brokerage).”

My take on this

The saving grace is that the subscriber acknowledged that he has to determine that franchising is the right path for him. I trust he’ll do that before he invests in a franchise.

But if he doesn’t find a job in another 90 days, or more, it may be easy for him to make the decision to go with his “backup plan.” Suddenly, he’ll decide (perhaps with some outside pressure, i.e. a spouse, a broker, hungry children, friends, etc.) that franchising is for him. Forget that it was once a “backup plan” — it’s now the plan because, seemingly, there’s no other option.

It’s probably a mistake

And I think that will be a mistake.

If your “backup plan” is franchising, that’s probably not going to work. If it’s not your passion to own a business, it’s not going to work. It’s too difficult to own a business. There are so many decisions, challenges, transitions, pitfalls — if it’s not your passion to tackle these issues head on, don’t do it.

Bottom line: Franchising never makes a good “backup plan.”

Franchise misfits

Unfortunately, we’re likely to see a lot of misfits in franchising as a result of the current economic crisis. People have their backs to the wall financially. When their unemployment runs out and they’ve used up their savings — what are they to do?

Lots of folks who have a vested interest will tell them to “Buy a franchise!”

That spells disaster for them and for franchising. It won’t help franchising when these reluctant buyers, who never really wanted to own a franchise, fail and return to corporate America in a couple of years when jobs are again plentiful. The aftermath of failures and disappointments will further damage franchising’s reputation.

I could be wrong. Hope I’m wrong. But history tends to repeat itself!

Photo image by: cesarastudillo

Promises, Promises — And It Seems Only The Franchisee Is Forced Into Making Them

“They’re telling me that I’ve got to make all these promises to them. I have to operate the business according to their expectations, and in return they’re promising to do very little for me. How does that make sense?”

Isabel is back!

Yep, it’s Isabel again. On a rampage again, too. I love it when she’s angry because she pushes me right to the edge. Much better than dealing with a client who is afraid to challenge the franchisor; afraid to ask difficult questions.

All those promises

Isabel had just read Item 9 — Franchisee’s Obligations — in the Franchise Disclosure Document (FDD) given to her by a franchisor. “It’s several pages long!” she complained. “They not only tell me when I have to open and close the business, but what I have to wear, how I have to act, how much advertising money I have to spend, and the volume that they expect me to produce every year! Not only that, they put restrictions on the products and services that I can sell!” (The latter referring to Item 8 of the FDD).

Isabel didn’t think it was fair. Especially not after reading Item 11 — Franchisor’s Assistance. “That section is about a paragraph long,” she shouted. “They don’t promise to do much of anything for me, but they certainly plan to keep me busy and keep my hands tied, too.”

“Not funny,” she admonished

When I laughed at her last comment Isabel didn’t appreciate it. “It’s not funny, John. I’m so close to buying this franchise, but I don’t understand why they are making it so lopsided. Don’t they want me to become a franchisee?”

I apologized, but then I got right to the point to give Isabel her money’s worth.

Getting the straight scoop early

“Look,” I said, “would you rather they tell you what’s expected of you after you buy the franchise?”

“Of course not,” she said. “I want to know upfront what’s expected of me.”

“Well then, that’s what you got,” I continued. “They told you what you’re expected to do. And they expect these things of you — hopefully — because they know these requirements will help you build a successful business. I say ‘hopefully’ Isabel because not all franchises are created equal. Some of them don’t know what they’re doing. It’s your job to select one that does know what they’re doing. In which case, they won’t have you jumping through hoops just for something to do.”

Franchisor doesn’t promise much

“Well from what I can judge,” she shot back, “they don’t do much. This franchisor doesn’t make any promises other than to train me and provide support and a few other things. However, when I talked to them about Item 11 they told me they’ll actually do more than they promise. I don’t know if I believe them.”

“I don’t blame you,” I said. “However, look at it from their point of view. If they make promises that they can’t keep — even through no fault of their own — what’s likely to happen?”

“They’ll get sued,” she said.

Under promise, over deliver

“Exactly! . . . Remember, once you’re a franchisee it’s important to them to keep you happy. But until then, it’s better to promise a little and then deliver a lot. ”

“Yea, well that’s what they told me they’ll do. But when I told them I want it in writing, they said that’s not going to happen.”

“It won’t,” I continued. “They’re not going to change their FDD just for you. But Isabel, I think you’re making too much of this.”

“How so?” she wondered, now in her cordial voice.

Do your homework

“Well, it’s no different than what we’ve talked about in the past. You don’t take anything the franchisor says at face value. You owe it to yourself to validate it. And how do you do that?”

“Ask the franchisees!”

“Very good,” I said. “You’re a terrific student.”

“So when I interview franchisees I’m going to ask them if the franchisor does more than they promise in Item 11. And I’m going to ask them if they think Item 9 expects too much of franchisees.”

It’s a business transaction

“Great! Good questions. You’re right on track, Iz. This is a business transaction. The FDD isn’t intended to make you feel warm and fuzzy. It’s the cold facts from the franchisor’s point of view. It’s your job now to find out if their point of view satisfies your expectations and your idea of what owning and operating a franchise is all about. If it doesn’t make sense, you’re still in control. No one is going to force you to buy the franchise.”

“Thank you,” she said. “I’ll let you know what I discover.”

No doubt she will . . . and boisterously, too!

Read Previous Isabel Blogs

Is Franchising Indentured Servitude?

Figuring Out What You’ll Earn As A Franchisee Even When The Franchisor Doesn’t Tell You

Figuring Out What You’ll Earn As A Franchisee Even When The Franchisor Doesn’t Tell You — Part II

The Franchisor Spelled It All Out And Isabel Was Furious! She Screamed: “Do They Think Franchisees Are Robots?”

Why You Can’t Have It ‘Your Way’ When You Buy A Franchise. Get This: It’s Not A Democracy!

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Photo image by: Robert Snache – Spirithands.net