As a prospective franchisee, you want to put your best foot forward. Once you do your preliminary research and decide on the franchise concept you want to pursue, you want to make sure you give yourself the best chance possible to move forward with an acquisition. While some franchisors are desperate for franchisees, these probably aren’t the franchisors you want to consider (at least not without being very careful). On the other hand, if a franchisor only has a select few desirable territories left in your area, you will want to do everything you can to make sure you don’t miss out on a good opportunity.
So, what makes you a “good” candidate for a franchise? Here, national franchise lawyer Jeffrey M. Goldstein shares his insights based on more than 30 years of experience in the franchise industry:
Positioning Yourself for Success as a Prospective Franchisee
As a prospective franchisee, your ability to succeed as a franchise owner matters. It matters immensely to you—because you will be investing substantial time, money and energy in your business. But it also matters to your franchisor. Franchisors care about the bottom line, and they want franchisees who can generate enough revenue to pay their royalties on time while also remaining satisfied enough not to rock the boat.
What does this mean for you? If you are in the process of buying a franchise (or thinking about buying a franchise), it means that you need to be confident in your abilities. It also means that you need to have the financial resources and stability to get your franchise to the point of profitability. Planning and preparation are key—and these will show through when you are speaking with franchisors and going through the due diligence process.
What does it mean to be prepared to buy a franchise? When evaluating prospective franchisees, reputable franchisors will typically consider factors such as:
1. Knowledge of the Franchise System
Franchisors will want to see that you have some knowledge about their franchise systems. Reputable franchisors receive lots of tire-kickers, and they need to figure out who is a serious candidate and who isn’t. If you have done your research, this shows not only that you are putting effort into the process but also that you have a specific interest in that particular franchise opportunity.
2. Education and Business Experience
As a franchisee, you will own your own business. While you don’t necessarily need an MBA, you do need to be savvy when it comes to the financial and business aspects of franchise ownership. If you’ve owned your own business in the past, this can help along with any formal education you may have.
3. Any Prior Experience in Franchising
Of course, prior experience in franchising helps, too. If you’ve owned a franchise in the past, or if you currently own a franchise and are seeking to become a multi-unit owner, this is something that most franchisors will look upon favorably—as long as it ended (or is going) well. With that said, prior experience in franchising isn’t necessary, and most prospective franchisees are first-time buyers.
Even if you have worked at a franchise as an employee, this can work in your favor. If you are familiar with the franchisor-franchisee relationship and how franchised outlets operate, this can help when it comes to setting expectations and being prepared to hit the ground running.
4. Access to Financing
If you don’t have access to financing, this is effectively a non-starter (although some franchisors offer their own financing options). Outside of franchisor financing, there are several additional financing options available, some of which are safer than others. For example, SBA loans are backed by the federal government, whereas pulling from your retirement or taking out a home equity line of credit can put more of your personal assets at risk. Even though you won’t need financing unless you find a franchise that you want to pursue, it is a good idea to make sure you know where your financing will come from before you get too far along in the process.
5. Being Cautiously Prepared to Move Forward
Franchisors—and especially their salespeople—want to know that you are prepared to move forward. But, good franchisors also know that prospective franchisees need to be cautious, and they need to take various steps to protect themselves throughout the buying process. As a result, good franchisors will provide you with a copy of their Franchise Disclosure Document (FDD) and franchise agreement if you appear to be a strong candidate, and they expect you to want to have these reviewed by a franchise lawyer.
6. Asking the Right Questions
When evaluating franchise opportunities you will (or should) have lots of questions. While some of these questions will be answered in the FDD and franchise agreement, others will not. If you ask good questions that aren’t answered in these documents, this will also help show that you are putting in the effort and that you are serious about making an informed buying decision.
7. Knowing Where to Negotiate
Finally, as a prospective franchisee, you need to know where to negotiate. For example, most (but not all) franchisors will consider things like system standards and royalty rates to be non-negotiable. On the other hand, overly one-sided indemnification and dispute resolution clauses may be subject to change. Negotiating smartly—without wasting the franchisor’s time or yours—is one of the last major steps toward setting yourself up for success before signing on the dotted line.
Request a Free Consultation with National Franchise Lawyer Jeffrey M. Goldstein
Are you thinking about buying a franchise? If so, and if you would like to know more about what to expect (and what to do) during the franchise buying process, we invite you to get in touch. To request a free consultation with national franchise lawyer Jeffrey M. Goldstein, please call 202-293-3947 or tell us how we can contact you online today.
