Step-by-Step Guide to Buying a Franchise
Step 4: Pick Two or Three Franchises to Pursue
Once you’ve determined the kinds of franchises you’re interested in, it’s time to pick two or three specific franchisors you want to investigate further.
The first place to start looking for specific franchises is our own AllBusiness AllStar Franchises, a list of the top 300 franchises in the country. This list is picked with complete editorial independence and provides a wealth of information.
Be sure to use search engines as well. Type in the industry or sector you’ve selected in Step 3 and the word “franchise.” “Food service franchise” is one example. You’ll get tons of results, including:
- Actual franchisors: These will be found in ads at the top of the page and down the right side, as well as in the nonpaid results in the middle of the page. They will almost always state the actual name of the franchisor. Click on a few of those that look most interesting to you.
- Franchise lead generators: Oftentimes marketed as “directories,” these sites earn their money by passing along your name and contact information to franchisors. Be very cautious before providing any information at this stage or you’ll risk getting inundated with lots of unwanted information.
- Franchise brokers: These sites are typically marketed as “free franchise consultants” and will ask you to provide personal information. They’ll also try to give you “assessment tests” and make “recommendations” based on your test results. Use caution here: Generally, these brokers only represent a limited set of franchisors and will try to sell you a brand-new location. They only get paid if they get you to buy a franchise.
- Articles: Many articles will be specific to a particular area or a particular franchise system. They can provide valuable background information. But be careful. Some of these will be self-serving, glorifying the advantages of franchises: They’re typically used as bait to encourage you to respond to a particular broker or franchisor.
Many business websites have valuable franchise information, some of which is more objective than others:
- AllBusiness.com – AllBusiness has worked hard to provide in-depth, independent editorial content. We strive to present all sides of a business, both the good and the bad.
- WorldFranchising.com – Owned by Rob Bond, who has been tracking the franchise business model for more than 20 years, this site has a helpful directory. Bond is an astute observer of the franchise model.
- Franchise.org – The official website of the International Franchise Association (IFA), this site promotes the interests of the franchisor community. It has a good listing of available franchise systems broken down into more than 100 categories.
- BizBen.com – This website lists small businesses and franchises for sale in California, but it’s got lots of valuable articles and resources for would-be entrepreneurs. There are sites like this for most states.
Franchise Disclosure Documents (FDDs)
The Franchise Disclosure Document (FDD) is a legal document that franchisors are required by the Federal Trade Commission to submit to franchisees at least 10 days prior to having them sign a franchise agreement. The FDD contains information in a standardized format, including contact information for existing and ex-franchisees, litigation that the franchisor is engaged in, performance requirements from both franchisors and franchisees, territory protection, financial information, and more. Please note that this document, while required by the FTC, is not reviewed or enforced by the FTC, and therefore the information contained in it should always be viewed with skepticism.
It’s important that you familiarize yourself with this document and thoroughly review the FDD of any franchise system you’re serious about. For further information, be sure to review:
What Is the Franchise Disclosure Document?
The Importance of Item 19 in the Franchise Disclosure Document
The Most Valuable Information in the Franchise Disclosure Document
PODCAST: The Franchise Disclosure Document: Understanding the Latest Regulations
PODCAST: A Close Look at the Pitfalls in the Franchise Disclosure Document
In general, most brokers are paid on commission by either the franchisor or the seller of a franchise or business. Which means they don’t get paid until the prospective franchisee buys something, and that’s their focus. Except in rare circumstances, they don’t represent the interests of the franchisee or buyer. Nevertheless, some franchise consultants can be helpful in locating potential franchise systems.
Continue to Step 5: Find Specific Franchise Locations for Sale
Return to Step 3: Select the Best Franchise System for You