How to Start a Home-Based Franchise: Ask the Right Questions
Once you think you've settled on the right brand, you've got to know what to ask the company. Franchisors are required to provide potential franchise owners with a franchise disclosure document (FDD), according to the Federal Trade Commission. The FDD is a legal document that discloses information about the franchise to help franchisees analyze the merits of a franchisor and it must be presented at least 10 days prior to the signing of the franchise agreement. Snider says, "If a franchisor can't produce a FDD one needs to be very, vey skeptical. I would go so far as to say that no FDD should be a non-starter."
The terms of the agreement my vary state to state or business to business, but Snider says most FDDs will include information on geographical limitations, royalty fees, advertising funding, earnings disclosure, number of current franchises and franchise success rates.
Remember that these agreements are, generally, inalterable, so you need to know exactly what the terms are before you sign on. The American Franchisee Association says to beware of gag orders, corporate kickbacks and drastic franchise agreement changes upon renewal.
Santisteban developed his own system of narrowing down potential brands when he was looking to buy into a cruise franchise. "No matter who you call, they're going to try to convince you they're the best," he says, so he started asking franchisors the important questions. Does the brand offer franchisees start-up tools? Does the company give franchisees continual training throughout their careers? Does the franchisor provide an accessible marketing team that teaches franchisees how to target clients?
These key questions narrowed Santisteban's search down to CruiseOne, but Snider suggests a few more discussion topics to bring up with your franchisor:
• Can you terminate early and what other termination rules apply?
• How many times can the FDD be renewed?
• What are the initial fees and continuing payments?
• What travel is involved and what is the cost?
It may be worth consulting legal advice when you're reviewing your FDD. Some franchisors may even offer you an attorney in your start-up package. "You're making a life-changing decision," says Snider, "and spending a couple thousand dollars just having a franchise attorney look over the agreement is well worth it."
Remember, the franchisor may have some questions for you, too. Dwain Wall, senior vice president and general manager of CruiseOne, helps franchisees like Santisteban get off the ground. He says CruiseOne's vetting process is rigorous, so before you meet with a franchisor, make sure you can explain your employment history. If you've changed jobs every few years, be able to explain why. A franchisor will only do business with you if they think you'll successfully bring business to them.
http://www.inc.com/guides/2010/05/start-home-based-franchise_pagen_2.html
Franchise Articles News
Signup to our Newsletter.
