Franchise Advisors Won’t Tell You To Buy A Franchise, But . . .

July 24, 2014 1:01 pm Published by Leave your thoughts

Two key professional advisors play an important role in helping you decide whether or not to buy a franchise, and I urge you to spend time with them as you consider the variety of franchise opportunities available to you.
It doesn’t matter if you’re considering famous brands, such as McDonald’s and 7-Eleven, or competing brands, such as Subway and Jimmy John’s, or Jani-King and Jan-Pro, or if you’re looking at a relatively new franchise, such as Farm Stores or Pinot’s Palette. Before you buy a franchise, you need the advice and guidance of a franchise attorney, and a franchise-savvy accountant.

Advisors advise

The first thing to know about franchise advisors is that the most you should expect from them is, well, advice. Do not expect an advisor to tell you to buy a franchise. That’s not what advisors do. And if you happen to find an advisor who tells you to buy, or not buy a franchise, you may very well have found the wrong advisor.

Advisors control very little regarding your franchise experience. They may not know much about your ability to succeed in a business, let alone a specific franchise. They may not know your franchisor, or be able to assess how well your franchisor will perform. Advisors do not predict economic misfortunes, and they cannot select “perfect” locations for franchise outlets. Besides all of that, advisors won’t tell you what to do for a very good reason: They don’t want you to blame them. If they say “buy” and you fail, you’re going to blame them. If they say “don’t buy” and you eventually regret it, you’re going to blame them. Consequently, advisors give advice with no strings attached, except of course, their invoice!

Benefits of franchise consultations

If you’re thinking, “Then why bother consulting with these advisors?” consider that while they won’t tell you to buy a franchise, they will point out possibilities (good and bad), pitfalls and problems. And if you ask them the rights questions, they’ll help you make up your own mind as to whether or not to buy a franchise.

Here are some benefits of hiring franchise advisors:

  • A franchise attorney will read the franchisor’s disclosure document and the franchise agreement, which is the license that you and the franchisor will sign; it’s the license that commits you to the offer. The attorney, who may be familiar with your intended franchisor, can tell you why the franchise agreement doesn’t favor you (and it never will), and highlight the small print: You didn’t know there was a training fee in addition to a franchise fee? You didn’t know you’d have to open a second unit within two years? You didn’t know you’d have to remodel your store every three years?
  • The attorney may have information about the franchisor relative to previous lawsuits. Why was the franchisor sued? Or why did the franchisor sue franchises? What were the outcomes of the suits? Has the franchisor made changes to avoid future lawsuits?
  • An accountant can show you financial benchmarks for similar businesses revealing how much revenue they generate, how much these businesses pay for rent, supplies, personnel, etc., and then compare the numbers to what your franchisor may be telling you to expect. If your franchisor doesn’t give you numbers, there are other ways to get them. For example, you can ask franchisees.
  • The accountant can dig into the franchisor’s audited financial statement, which must be given to you in advance of buying a franchise, and draw conclusions about unit volumes, royalties, and so forth.
  • Both of these advisors can suggest questions that you need to ask the franchisor prior to you deciding to buy a franchise.

You may need several weeks to consult with your advisors, and several more weeks to follow up and gather additional information before you make a second appointment.

It’s important to ask the right questions

You can gain additional benefits from your advisors by asking the right questions. Here are several questions that I recommend you ask (you will find many more pertinent questions in 101 Questions To Ask Before You Invest In A Franchise).

  • Is the franchise agreement fair for both parties?
  • How is this franchise agreement different from other good franchise agreements that you have reviewed?
  • If you were purchasing this franchise, what concessions, if any, would you ask for?
  • What’s your evaluation of the company’s financial condition?
  • Based on what you know about me and my situation, can I afford to invest in this franchise?
  • Do you know the franchisor, or any of the franchisees, and if so, how do you evaluate them and the franchise opportunity?
  • Have I provided sufficient information for you to help me evaluate this opportunity? What else, if anything, should I ask for from the franchisor?
  • If I need to borrow money, can you lead me to lenders? What’s your opinion about converting my retirement fund into a loan for my business?

It’s easy to find franchise attorneys and accountants, but keep in mind they are not all created equally – some are better than others (just like franchisors and franchisees). For a list of advisors, contact the International Franchise Association, or ask franchisees for recommendations.

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This post was written by Dr. John Hayes

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