Chances are if you’re shopping for a franchise, you’re going to wind up at a franchise expo. In fact, if you are seriously shopping for a franchise, I urge you to check out a show. I hadn’t been to a franchise show for several years, so I was eager to check out the IFE show held in Los Angeles last fall. One of the first things I noticed was how many relatively new franchise companies were exhibiting there. That’s a good thing for potential franchise buyers, since the newer a franchise is, often the more willing they are to negotiate the terms with potential buyers.
All the franchisors (the new and the old-timers) I talked to were enthusiastic and eagerly courting potential franchisees. And why not? When the unemployment rate soars, the rate of businesses (independent and franchised) started in this country tends to follow that same trajectory.
But don’t just show up at a franchise expo unprepared. Before you go, you should start the franchise selection process by deciding what kind of business you’re interested in (restaurant, automotive, business services, etc.), how much money you have to invest, and any other prerequisites you have. A great way to start is to head over to the AllBusiness Franchise Directory to learn what franchisors are out there and what they offer. One of the advantages of attending a franchise show is that you get to compare many different companies and meet their representatives. But remember, the franchisor’s job is to convince you to buy their franchise, so it’s smarter to go with a plan to avoid being swayed by a great sales pitch.
One of the advantages of buying a franchise is, in most cases, you don’t have to have any experience in the industry you’re interested in. Most franchisors thoroughly train you in their system, so it’s more important you pick a field that interests you and that you think you can excel in. When you buy a franchise you will have to sign a term of agreement with the parent company. Unless something goes wrong, you’re going to be wedded to the franchise for anywhere from seven to 20 years, so you really want to make sure it’s a good fit.
At the expo, walk the exhibit hall floor, noting which franchisors you want to talk to. If you’ve done your homework, you will already know certain basic facts about the company. If you haven’t, here’s what you need to find out:
- How many years has the company been in business? When did it start franchising?
- How many franchises are in the system? Are there any in your city? How many?
- How much is the initial franchise fee? Are there any additional costs at startup? What percentage royalty will the franchisor be collecting?
- What is the initial training system offered? Is there ongoing management support?
- What goods or services does the franchisor provide?
It’s natural to want at least an indication of how much money you’re likely to earn as a franchisee. Some franchisors will be happy to share this information with you, while others prefer not to make an “earnings claim.” If the company tells you how much money you’ll likely make, they are required to back up the claim in writing. This information can be contained in the Franchise Disclosure Document (FDD) that the company is required to give you before you invest in a franchise.
Do not allow yourself to be pressured into saying “yes” on the spot. Some companies might press you for a decision, claiming that the franchisor’s offering is limited, that there are only a few territories left, or that a “show special” is going on. If you feel pressured, walk away. Buying a franchise is a big commitment and not one you want to make lightly. Most franchisors understand this and will allow you to go home and digest everything you’ve seen and heard at the franchise show.
Attending a franchise expo could be the key to helping you find the perfect franchise opportunity for you. And while these shows are exciting, there’s often so much to take in. So make sure you note what you see, whether on a notepad or an electronic device. Collect sales and other promotional literature from the exhibiting franchises. When and if you get a company’s FDD, make sure you have a qualified attorney review the document. It’s also a good idea to have an accountant go over the franchisor’s financial documents, which are included in the FDD.
Buying a franchise is a big decision. If you start with a plan and stick to it, it may well turn out to be one of the smartest decisions you ever make.
Be a featured guest on our weekly podcast show! We want to hear from you on the AllBusiness.com “Ask the AllBusiness Expert” podcast. If you’d like Rieva Lesonsky to answer your questions about entrepreneurship or running a small business, please send an e-mail. Or you can just e-mail Rieva directly at firstname.lastname@example.org. We’re looking forward to hearing from you.
Follow Rieva on Twitter @Rieva