10 Mistakes of Prospective Franchisees

1. Not concentrating enough on the UFOC (Uniform Franchise Offering Circular).
   
   This document is really extensive, with up to 80 pages of bare knuckle information. It’s paramount that you sit down and fully understand every Item from 1 through 23. Always cross those parts you don’t understand with a highlighter and refer back to them later. Although your lawyer may be required to understand the logistics of this type of document for you, pretend the franchiser knows what he has written and ask him/them for clarification. After that, discuss with your lawyer. Always look at the document’s date. If it’s recent, you might want to ask for a prior UFOC to compare it with.
   
   The main problem between the rookie franchisee and the franchiser is unawareness and a misunderstanding in what responsibilities each of them hold. Read and read again the responsibilities outlined to you in the UFOC, paying close attention to Item 11. Don’t always think franchisers are responsible for providing each and every support service. Anything that needs further clarification should be expressed in writing. Jot down responsibilities you’re unclear about and find out whom they belong to by discussing it with the franchiser.
   
   
2. Misinterpreting the franchise agreement comes like clockwork.
   
   Before signing anything, make sure to review it carefully with your lawyer in addition to any lease or real estate contracts. Come up with a bunch of questions to review with your lawyer, then go on and discuss them with the franchiser. For added security, add all clarification statements in writing. Although franchise agreements are fairly standard, items can be changed. Franchisers should be able to provide you with additional documents that better explain the contents of the franchise agreement that raise questions between yourself and your lawyer.
   
   
3. Poor legal advice.
   
   Always seek out an attorney familiar with the franchising process and stay away from the less experienced ones. Finding one with direct franchising experience is a plus.
   
   
4. Never take a franchiser’s word.
   
   It can always backfire on you come contract time. Therefore, it’s a good idea to bring a tape recorder to all franchiser meetings. In case you need to go to court, this is a good piece of evidence should they require it. Also, it lets the franchise representatives know you mean business. Although it might infringe on their privacy, it is allowed – though writing notes is an option as well. After every note session, be sure to review them. Should you like, you can hand over your notes to the franchiser along with s list of items you want clarification on. Be 100% sure about every item, statement, and fact discussed during the meetings to avoid potential conflict later.
   
   One final note: verification (not clarification) is also important. When franchisers speak with you, validate their words by speaking to current franchisees already with the company. In addition, make the habit of repeating past discussions at meetings to avoid confusion and get an additional yes from the franchiser. Anything that’s spoken should be put into writing if it’s not stated in the UFOC, the disclosure document, or any piece of company literature.
   
   
5. No communication with current franchisees.
   
   Refer to the disclosure information entitled “Past, Current, and Future Franchisees” for a listing of current franchisees’ contact information. Always relay your questions and concerns to those already in the business. Sometimes, franchisers give tours of various businesses under their wing run by these franchisees. Take their numbers and reach them later for a question-and-answer session. Its best to contact them individually as some questions might slightly offend franchisers if heard.
   
   Also, check to see if franchisers hired the franchisees you visited to perform some “recruiting” work. This will help you avoid those whose opinion is swayed by performance commissions and so forth. Choose a select few mentioned in the disclosure document and ask them about the franchise’s reputation and relationships with vendors and suppliers. Make sure existing franchisees tell you how accurate both past and current disclosure documents are. For any information not mentioned in the disclosure document, you can ask them as well.
   
   Your franchisee search shouldn’t be limited to one range. Look for those with multiple franchises, “old-time” franchisees, poor performing and franchisees in their first or second year of business. This will present a wider, more accurate range of opinions. Questions prospective franchisees might want to ask are:
   

   1) Is the franchise too controlling over your operations? (or lack of)

   2) Does the franchise have a solid support system in place?

   3) Has the franchiser fulfilled its promise helping you through its training programs? Can you rate the training program from 1 to 10 in terms of helpfulness?

6. Not checking to see why previous franchises failed.
   
   As we all know, we learn from our own (as well as those of others) mistakes. Check up on franchise units that are being sold, have closed, or changed addresses and find out why this happened. Locate previous owners and ask for their input. If many failed ex-franchisees come to you with the same story of a training program not meeting expectations or a flawed operating system, this raises a red flag. Don’t be afraid to review these issues with the franchiser as well.
   
   
7. A lack of cash for startup – Business accumulates costs and expenses like clockwork.
   
   Make sure there is enough cash to cover these expenses including startup and family budget funds, in addition to enough operating cash until the business starts to turn a steady profit.
   
   
8. Underestimating the financing process.
   
   Without preparing a solid financial statement and ignoring to learn how to ask for loans can leave you with little options. If you’re not into business accounting, seek an accountant’s advice on financial matters.
   
   
9. Failing to meet with top company representatives at their building or field representatives from your area.
   
   Any sales representatives know how to trigger prospective franchisees’ emotions, hyping up the business until you mistakenly assume speaking to other key personnel would be a waste of time. Before signing on the dotted line, its important to go directly to the headquarters and speak with top officials. Use them to verify any information given to you by the sales rep.
   
   After the franchiser makes clarifications on your area, ask to meet the territory supervisor that’ll be working side by side with you. Make sure there are no personality clashes between you and the field representatives, as you’ll be dealing with each other frequently. In addition, find out how much experience has. Are you seeing any problems? It’s always best to speak with a company representative and get some clarification/make changes to the agreement before adding your signature anywhere.
   
   
10. Not studying the market beforehand.
    
    The franchiser might be willing to help you locate a spot, but it’s your ultimate responsibility in deciding if that spot will generate enough customers and sales. Make sure there is a demand for your product or service in the area you’re in, or competition will be taking the reigns.

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