by Stewart Germann

Prospective franchisee checklist

FRANCHISE DISCLOSURE DOCUMENT SHOULD CONTAIN:

  • Identifying data on the franchisor

  • Directors' and key executives' business experience

  • Company's track record

  • Description of the franchise

  • Initial investment required

  • Other payments due to franchisor

  • Data on help in raising finance

  • Restrictions on franchisee's conduct of business

  • Level of franchisee's personal participation

  • Termination/renewal of agreement terms

  • Number of existing franchisees and their success rates

  • Franchisor's rights to select/approve sites

  • Training and support guaranteed to the franchisee

  • Financial information about pilot operation

  • Financial data on the franchisor

  • List of franchisor's banker and other professional advisers

  • Current number of franchisees

  • Permission to talk to random franchisees

  • Main source of company earnings

  • Value and appeal of product or service

WHAT TO FIND OUT FROM THE FRANCHISOR:

  • Company's financial health and history  How long it has been franchising

  • Details of pilot operation results

  • Long term viability of product/service

  • Type and level of head office support  Full details of the training provided

  • Whether training is an extra cost

  • Total cost of taking up the franchise

  • Realistic working capital needed

  • Permission for bank references and other referees

  • Territorial practices and exclusivity terms

  • Types and amounts of advertising support

  • Any need to buy products from the franchisor

  • Target obligations

  • Realistic profit and loss figures

  • Management services or royalty payments

  • Operating restrictions

  • Launch assistance

  • Sample contract

FRANCHISE AGREEMENT MUST COVER:

  • Your rights to sell or transfer ownership of the franchise

  • Description of your heirs' rights in the event of your death

  • Geographical area and types of customers to whom you may sell

  • Nature and extent of your obligations to the franchisor, including buying supplies and services

  • Rights to renew or extend contract beyond the original term

  • Terms and conditions under which you may terminate the contract

  • Description of exact training and support the franchisor must provide

  • Precise definition of price, commissions, rental fees, leases needed to own and operate franchise

  • Precise boundaries of the territory awarded to you

BE WARY IF THE FRANCHISOR:

  • Promises huge profits with thin investments

  • Says "act now to get in on ground floor"

  • Fails to give statistics on sales/profits

  • Promises 'easy sales'

  • Fails to identify directors or principals

  • Tries to 'trade you up' to a higher fee

  • Says "act now, it'll cost more later"

  • Promises profits by sub-franchising

  • Has a name similar to a well-known business

  • Promises large income from 'work at home'

  • Demands large upfront franchise fee

  • Has very short term contract

  • Provides no data on track record or financial strength

  • Cannot give plans for future development

  • Has vague territories

  • Is ignorant of competition

  • Has incomprehensible contract

  • Is vague about support and training

  • Has weak advertising

  • Is vague about financial obligations for the franchisee

  • Has poor head office premises

  • Tries to meet in a hotel

  • Is evasive about access to existing franchisees