Frequently Asked Questions
Why a franchise instead of a start-up or an existing business?
-Franchisors offer a proven system increasing your chances of success. Many franchisors have spent years perfecting their business models and have the added benefit of operating corporate stores as well. They also understand the ownership profile that successfully operates their model. Because of this, franchised units have a historically higher percentage of success than start-ups.
How do I pick the right franchise?
-Finding the right franchise is a process. The right business model should provide the owner the means to their goals, but is not the goal itself. Whatever your circumstances chances are there's a franchise that fits your specific needs goals and resources. Whether your seeking to supplement or replace an income, turn hobby into profit, or establish an enterprise that "gives back", defining your goals and objectives helps selecting the best fitting opportunities.
What do I get for my franchise fee?
-The most common answer to that question is "a sign and training." But think of what these two components actually mean.
Franchisors have spent thousands of dollars and years of effort developing a successful brand and business model. The training provides a new owner a fast track to success, avoiding the costly pitfalls of many start-ups. The prospective owner also has the benefit of cumulative experience of other franchisees within the system and can fully validate the business model prior to purchase.
-There are many other hidden values as well including bulk purchasing power, site selection assistance, operations, employee, and training manuals, as well as customized operating and financial software.
-The franchise fee is "zero-sum" in its nature. By that the franchisor typically expends this amount in the recruitment, training, and development of new franchisees.
What are royalties?
-Royalties are the recurring fees a franchisee pays to the franchisor as specified in the agreements. This fee structure allows a franchisor the means to continually support and improve its franchise system. Since the franchise fee only covers the initial outlay in bringing on new owners, the royalty fee perpetuates the Company for it to fulfill its obligation to its owners, grow their business, and remain competitive.
What is the F.D.D.?
-The Federal Trade Commission regulates the franchise industry, and all the franchisors must submit their Franchise Disclosure Document to the F.T.C.. The F.D.D. contains twenty three items describing the relationship of the franchisor and franchisee. These items include such things as the history of the franchisor and it's principals, any current litigation or bankruptcies, initial investments, recurring fees, and other associated franchise costs. The F.D.D. also contains the then current franchise and operating agreements, current franchisees, and company audited financial statements. The F.D.D. must be given to any perspective owner at least 14 calendar days prior to the execution of any agreements or payment of any fees.
How much can I make?
-Probably the most interesting question, and one that has few answers since each franchise and each owner is different. In the F.D.D. Item 19 addresses any earning claim or financial performance representation. Most companies elect not to make any claims or representations for a variety of reasons. The most reliable source of verifying earning potential can be through the Companies franchisees (Item 20 in the F.D.D. lists all current franchisees with contact information).
What is a Discovery Day?
-Most franchisors host a formal invitation for prospective owners to visit their headquarter called Discovery Day. This provides both parties an opportunity to take measure of the other, evaluating the mutual benefits each has to offer. Remember, the franchisor will invest substantial dollars and management time in launching a new operator, and has a responsibility to ensure the integrity of the system to its current base of owners. The Discovery Day visit is just that, an opportunity for each party to learn more about the other.
