Before Buying a Franchise, Follow These Essential Steps

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If you are familiar with franchise and have chosen this path to establish yourself as a company owner, congratulations. Franchise proven business models, training and ongoing support provide numerous benefits for new entrepreneurs† However, to get there, you must adhere to essential steps in the process. While the total number may vary, depending on each franchise’s awarding process, you can expect to progress through certain stages of progress in order. Each step requires a candidate to do the right amount of due diligence, and the stakes get higher as you progress. Following are the steps to expect in what franchising is considered the “research process.”

Research and assess franchise concepts

Ah, the fun! Yes, the first stage of the process involves your assessment of various franchise concepts. There are thousands to choose from, so be patient. Some entrepreneurs start this phase on their own. Others can take the help of a franchise consultant or broker who will showcase brands based on how well the concepts match a candidate’s goals, lifestyle, and income potential. The purpose of this phase is to narrow down your choices to a handful of possibilities and then proceed with an elimination process. An important piece of advice for this phase? Make sure you get a open minded when you determined franchises† Some may not seem all that appealing at first, but it’s the business models and your aptitude for running them that matter the most. Franchising does not require you to have an emotional connection to the product or service you are selling.

the FDD

The Franchise Disclosure Document (FDD) is like a prospectus that describes the opportunities, value propositions, fees, and the roles of both the franchisor and franchisee. FDDs are mandated by the FTC and must be provided at least 14 days before a binding agreement is signed. They have 23 different sections and follow the exact same format per section, regardless of the franchise concept. In their FDD, franchisors are required to provide an accurate description of their size, market presence, their leadership team, required investments, training, support and any pending legal issues. This “open book” review of individual franchise concepts is a very important step in the process, and one where it is highly recommended that you seek professional guidance from a franchise attorney, CPA, or both. You can download this chart of all 23 sections of the FDD by follow this link.

Validation

After you complete your assessment of the FDD, you must make a decision whether to proceed or choose a different draft to continue. This stage is called validation and that’s exactly what it sounds like. During the validation step, you will have the opportunity to participate in one-on-one conversations (or in-person visits) with representatives of the brand’s corporate leadership team and existing franchisees in the system. This is your chance to delve further into the franchise operation. This step requires some preparation beforehand, you will want to start a validation session with a list of questions and concerns about what it is like to own a franchised location with the brand. It’s no time to be shy, this is your chance to be honest and get honest answers in return. Many franchisees point to the validation stage as the moment when they were convinced to buy.

Discovery day

Discovery Day, also known as ‘Meet the Team’ day or ‘Celebration Day’, is akin to a final job interview. You’ve made it past the phone screen and subsequent interviews with various team members, and now it’s time for the CEO to review you — and vice versa. It is the last step of the evaluation process. This usually involves a visit to the brand’s headquarters for an action-packed day of meetings, meals, behind-the-scenes tours, and serious conversations. You want to look your best — and behave — so treat it like a final job interview. Dress for success and be your best, because at the end of Discovery day the brand will make a final decision to offer you the opportunity to become a franchisee.

Franchise Agreement and Signature Day

If your Discovery Day is a success and you have the opportunity to become a franchisee, you will receive the brand’s franchise agreement. It’s just as important as the FDD, so take your time and carefully review the agreement with a franchise attorney. Check it out section by section and ask questions about anything you don’t understand. When you’re happy with the agreement, it’s time to sign on the dotted line.

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