Author: Joel Libava
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New Post From The Franchise King®
I get it. You want to make sure you’re looking at the best franchise to open.
But if you’ve never looked at buying a franchise, how will you know when you’ve found the best one?
And how will you know what to watch out for?
In this post, I’m going to expose a few things that a small number of franchise organizations do when you contact them for more information and start working through their sales process.
In short, they’re the things you need to watch out for as you pursue your dream of franchise business ownership.
You want to make a smart decision on a franchise to buy, right?
Let’s dig in.
5 Signs That You’re Not Looking At The Best Franchise To Open
In no apparent order, these are some of the things some franchisors do that should give you pause.
1. Your first in-depth call with the franchise representative feels like the last time you bought a new car.
In particular, the franchise rep is peppering you with questions-as opposed to a typical scenario in which you’re the one asking questions about the opportunity you requested information on.
Here’s an example of how the first part of your conversation with a franchise rep should go.
Franchise Rep: “Again, thank you for your interest in our Senior Care Franchise. I’m excited to share the details about our franchise business, and all of the positive things we’re doing for our franchisees, but first I wanted to know if you have any questions you’d like to ask me.”
Conversely…
Here’s How Your First Call With A Franchise Rep Shouldn’t Go
Franchise Rep: “I see that you requested information on our franchise opportunity. That’s great! You know that we’re the best franchise in our category, right? Any, before I begin my presentation, I have some questions I need to ask.
Number one, when you filled out our basic information form, you put down $500k as your net worth. How much of that are you willing to invest-including the initial franchise fee, to open our franchise opportunity in your area?
Two, buying a franchise is a big step. How serious are you about being your own boss?
And three, if you like our concept, are you ready to move forward on it in the next 90 days, and will you have the entire initial investment available?
Pretty aggressive, right?
My guess is that most people on the other end of the phone would feel uncomfortable with that line of questioning early on in the process. Would you?
The bottom line here is that the first conversation (s) with a franchisor should be the “let’s get to know each other” type of calls with lots of information sharing.
They shouldn’t consist of a franchise sales representative dominating the conversation and hammering on you with questions about your ability to come up with the upfont franchise fee if you decide to buy the franchise business. Remeber, this is about you, not her and her desire to move you through the process in her time frame.
Let’s look at the next sign that should cause you worry as you look into the various franchise opportunities that are available.
2. You’re invited to Discovery Day* one week after you requested information from the franchisor.
*A Discovery Day is a full-day event. You’ll visit headquarters, so you can meet the team, and see the operation first-hand. More information on Franchise Discovery Days can be found here.
Although attending a Discovery Day is an important part of the franchise discovery process, I’ve worked with way too many people who tell me they were invited to headquarters for a Discovery Day on their 1st or 2nd call with their franchise reps. That’s way to early! When that happens here’s what I tell them:
“First off, as I told you when we started working together, Discovery Day is supposed to take place after you’ve learned a lot about the franchise business you’re potentially interested in purchasing-including what your initial investment will be, your feelings about the business model, and more.
In addition, you should never attend one until you’ve received the FDD and have talked to several franchisees who currently own and operate the franchise business.
Furthermore, a visit to headquarters generally takes place several weeks into the due diligence process…not in the first couple of weeks.
That said, don’t* go until you’ve done the things I talked about, okay?
*I have about a 90% success rate here. In other words, 90% of my clients trust me on this point and don’t go to a Discovery Day that early in the process. Yay!
Wait. Why Do Some Franchisors Try To Rush Discovery Day?
With over 30 years of sales experience (in a few different industries) under my belt, I’m more than qualified to tell you why a franchisor wants you to attend a Discovery Day at the beginning of the sales process. Ready?
Because they want to take advantage of the emotional high you’re on. I’ll explain.
It’s exciting to find a franchise opportunity that looks like a good one to open.
As a matter of fact, it’s so exciting, I’d be willing to wager that if a trained psychologist were to record what goes on in your brain when you’re sitting in front of your PC searching for a franchise to buy-and you find one you like, the pleasure part of your brain would show data that was off the chart.
That said, you need to investigate the franchise opportunity you’re focused on thoroughly, while doing the best you can to keep your emotions in check.
That way, your yes or no decision on the franchise will be fact-based.
Finally, attend the Discovery Day!
Just don’t do it too early in the process.
3. The franchise representative avoids sending you their Franchise Disclosure Document (FDD) until the last minute. This is never good.
As you probably know, the FDD is an important document to get your hands on. Why?
Because it contains specific data on the franchise operation, including the history of the company and its executives, financial information, the number of franchises in business, contact information for current and former franchisees, a list of locations-and more.
But when is the franchise rep supposed to send the Franchise Disclosure Document to you?
That answer comes from the Federal Trade Commission:
“Under the Franchise Rule enforced by the FTC, you must receive the document at least 14 days before you are asked to sign any contract or pay any money to the franchisor or an affiliate of the franchisor. You have the right to ask for — and get — a copy of the FDD once the franchisor has received your application and agreed to consider it. Indeed, you may want to get a copy of the franchisor’s FDD before you spend any money to investigate the franchise offering. The franchisor may give you a copy of its FDD on paper, via email, through a web page or on a disc.”
In other words, if you’ve filled out a franchise application, the franchisor needs to send you their FDD. It’s simple stuff. So why would they delay sending it to you?
Possible Reasons For Slow-Walking Delivery Of The FDD
One possible reason why you haven’t received the FDD in a timely manner could be because it reveals some negative information about the franchisor.
For example, maybe an abnormal* number of franchisees may have “left the system” in the past couple of years.
*Let’s say the franchise opportunity you’re interested in opening has 200 franchisees in their system.
If, according to the FDD, 25 franchisees left the system in the last 12 months, that’s abnormal. And a smart potential franchise buyer (you) needs to find out why.
With that in mind, there may be an acceptable reason for a high number of franchise owners leaving. For instance, a pandemic.
Conversely, there may not be a good reason for over 12% of the franchisees leaving. For example, maybe they couldn’t make any money!
Another reason why your franchise rep seems to be permanently stuck in FDD delay mode may have to do with legal problems the franchisor is having. Namely, lawsuits. As in there are a lot of lawsuits* and they’re revealed (like they’re supposed to be) in the Franchise Disclosure Document.
*Look for lawsuits in which franchisees are suing the franchisor. Is there a pattern?
I interrupt this post to remind you to always hire an experienced franchise attorney to go through the FDD with you. You need to understand this legal document in its entirety.
The Good News About FDD Delay Tactics
There isn’t any good news.
To that end, if you find yourself practically begging your franchise sales representative to send you their FDD, you need to walk run away from that franchise opportunity. But…but…
“But what if I know in my heart the business will be a success in my location, Joel? What if I know I’ll be able to make money as a franchisee?
My answer:
The decision to buy a franchise must be one that’s based on a combination of facts, data, and gut feel.
You need to make sure that all those boxes are checked.
Because if they’re not, and you do move forward on what you feel is the best franchise opportunity for you, you may find yourself in a heap of trouble.
P.S. Once in a great while, the only reason franchisors delay sending you the FDD is because they’re using outdated franchise industry sales techniques. These techniques are all about “controlling the customer.” In other words, not providing information until you…the seller, is ready.
Tip: Tell your sales rep that what she’s doing is unacceptable, and if she wants to sell a franchise she needs to send you the FDD now. Let’s continue.
On Using The Magic Of The World Wide Web
4. A simple Google search of the franchise you’re interested in quickly reveals information that can only be found on Sean’s website. In other words, you found a franchise that has potential problems because some (or a lot) of their franchise owners are unhappy. That’s never good.
A question: are using the internet to gather information on the franchise opportunities you’re interested in pursuing?
Maybe a better question is this one: are you using the full capacity of the internet?
Specifically, do you know where to look for hidden information about the franchise company you’re interested in partnering with, along with the backgrounds of the franchise executives at headquarters?
If so, wonderful. You’re a rare bird.
If you don’t know where to look, grab my franchise research guide, so you can learn exactly how (and where) to find crucial information about the franchise opportunities you’re looking at.
Why does this matter?
Because by gaining access to all the information that’s available could save you a lot of money, and with it, plenty of future headaches.
On the other hand, you may see and hear things that confirm your suspicions about the franchise opportunity you’re interested in buying.
Like maybe it turns out to be the best franchise to open in your geographic area.
This One Bothers Me A Lot
5. When it comes time to call franchisees who own the franchise you may want to own too, your franchise rep tells you that “You’re only allowed to call the franchisees on the list I’m sending you.”
Note: my blood pressure immediately spiked when I typed that sentence. Why?
Because it’s a bunch of bulls*it. You can call any franchisee you want. As a matter of fact, you can talk to as many franchise owners as your heart desires…and you should, as…
Talking To Existing Franchise Owners Is The Most Important Part Of Your Research.
Why Do You Need To Talk To Other Franchise Owners?
Because it’s where the rubber hit’s the road.
It’s where myths and facts get separated.
It’s also where you get your money questions answered.
Finally, it’s where decisions get made.
Decisions on whether or not you should invest in the franchise business you’re thinking about opening.
So why would your franchise salesperson only want you to talk to franchise owners he gives you the names and phone numbers of? A couple of reasons.
First off, you may be looking at an extremely popular franchise offering…one with some recent brand recognition. If that’s the case, franchisees are getting a lot of calls from people just like you. Because of that, franchisees may be calling headquarters to complain about it. So what?
I’m saying, “so what” because in most cases, they had to do the same thing. That’s right; they called existing franchisees to get their questions answered too! Taking calls from would-be franchise owners comes with the territory. So don’t feel guilty calling existing (and former) franchisees.
Next on the hit parade is something a bit more nefarious.
In this scenario, your rep is offering to give you names and phone numbers of a small number of franchisees ahead of time, hoping you’ll be satisfied with his proactive approach, so you won’t call other franchisees. Would you like to guess why?
Exactly.
Because some (or a lot) of the franchisees aren’t doing well.
In short, they may be barely breaking even, losing money, angry about their decision to buy the franchise they now own, and/or they’re mad at headquarters. Whatever the reason, you can bet it’s not good.
That said, there are exceptions to the rule…although I can’t think of any that are legit.
The bottom line:
If you’re handed a list of franchisees to call, it’s okay to call a couple of them from said list, but don’t stop there.
Instead, grab the FDD and randomly call more of them. A lot more. Like 10-15 more. That way you’ll have a good snapshot of how franchisees are currently faring in the franchise system you’re thinking of becoming a part of.
A Final Word
The 5 things I told you about, the signs that suggest that you may not be looking at the best franchise to open, are derived from my experience working with thousands of prospective franchise owners over the years.
With that in mind, you need to look at each franchise opportunity closely, because your experience may be different.
Just go slow, so you don’t miss anything…any signs.
The post 5 Signs You’re Not Exactly Looking At The Best Franchise Business To Open appeared first on Find The Best Franchise To Buy | The Franchise King®.