What Not To Do When Buying A Franchise

August 20, 2019

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What not to do when buying a franchise

If it’s your first time evaluating a franchise, you may not know exactly what to expect. The FTC offers A Consumer’s Guide to Buying a Franchise, which is worth reading, but here’s a plain English guide written by franchise experts with more than two decades of combined experience.

Common Mistakes

1).     Avoiding the Sales Rep. You may be wary of speaking to franchise sales representatives and avoid their call. After all, in the age of the internet, can’t you just figure things out on your own? Not really. There’s a lot of information online, but often times the most important information is kept confidential by the franchise company and only shared with qualified franchise candidates. The brand needs to qualify YOU first, and that’s the primary role of the sales rep.

The Fix: It’s best to spend 15 minutes on the phone with an expert on the brand before you spend hours of your time searching the depths of the internet. It will save you a lot of time by going direct to the source.

2. Stopping Before You Get Started. Franchising is a long term business relationship and franchise brands are not expecting you to make any decisions early on in the process. In fact, in the world of franchising, it would be illegal to do so. There’s a document called a Franchise Disclosure Document that the franchisor must provide to you a minimum of 14 days prior to signing a contract. This means there’s a lengthy due diligence process (typically 30 to 60 days) where you’ll be receiving lots of information. In order to get access to the detailed information you need to truly assess the opportunity, the franchisor will ask a simple request of you.

Franchisors often ask for an “application” or “request for consideration” to kickoff the process. Think of the application like a gatekeeper. Your information is kept confidential and there’s no obligation or expectation that you’ll purchase a franchise. After all, you have to qualify and be approved as a franchisee. But the information behind the gates is worth protecting, and brands want to make sure that only truly qualified candidates get access. Pretty fair.  

The Fix: Don’t get scared off by the application. It doesn’t obligate you to anything at all so there’s no risk for you. It simply shows a franchisor that you’re qualified and worth their risk of exposing you to confidential information while investing time and resources into your education.

3. Going Outside of the Process. If it isn’t clear yet, franchisors are assessing your ability to successfully represent their cherished brand. One of the factors they consider is whether or not you’re able to follow a simple process. Going outside of that process in any way can negatively affect your chances of being selected as a franchisee.  

The Fix: Believe it or not, the process is actually designed with the purpose of facilitating learning for potential franchisees. Stick to the process and you’ll experience the most efficient learning process possible, which will lead you to making an educated decision, whether it’s a yes or a no.

A typical process shouldn’t cost you any money until you go to Discovery Day (explained below). Even then, it should only be your travel costs. It will probably look something like this:

  1. Initial call with brand development representative (15-30 min)
  2. You’ll complete the application (or Request for Consideration)
  3. You’ll receive the Franchise Disclosure Document (Read about this here)
  4. You’ll review the FDD with a more senior development manager or director
  5. You’ll likely get an opportunity to speak with franchisees that were once in your shoes, trying to decide if this is the right franchise for them
  6. You’ll attend Discovery Day at the brand’s HQ, where you’ll meet everyone you’ve been working with in the process, as well as founders and executives. This is the step where final approval would be issued for both parties.
  7. If you’re approved by the franchisor and you also love the franchise opportunity, you’ll sign a franchise agreement and pay the franchise fee.

In summary, don’t cut your wings before you learn to fly. Buying a franchise can be scary, especially when you’re being told to fall in line to a process you may wish was better aligned with your order of operations. But the truth is that top performing franchisees follow the system, and if you think you have a better way of doing it, then you should do it your way with your own brand. Follow the process. The worst case scenario is that you expand your knowledge without having sacrificed anything but time. The best case scenario is you find a great franchise that aligns with your goals and you achieve your dreams of entrepreneurship. Either way, it all starts by following the process.

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