Buying a franchise? Check out Item 20. (And check references!)

by | Mar 29, 2019 | Blog, For Franchisees

Buying a franchise? History matters. And in this instance, history means references. So check them out. Really.
Checking references — contacting others currently in your franchisor’s stable, or who have left the franchise system for one reason or another is a key piece to avoiding post-purchase, buyer’s remorse. This is the best opportunity you’ll be offered to “look before you leap” — to speak to other franchisees (current and former) about their experiences in the trenches.

Who are these business people and how do you find them?

Open up your franchise disclosure document (FDD) and check out Item 20. That’s where you’ll find contact information for current and former franchisees. Call them. Call them all. They represent your best source for real world, boots on the ground, information about the franchise, the franchisor and the industry in which it operates.

Don’t be shy

Do not let shyness or misgivings about “cold calling” stop you from contacting current and former franchisees. There’s a reason their information is provided in the FDD. First of all, it is the law. Lawmakers and governmental regulators know how important it is to your due diligence process to speak to others in the market/industry/franchise system that you are considering. They are so committed to this process, they have written laws requiring franchisors to provide prospective franchisees with contact information for existing and former franchisees. They want you to contact them before you sign on the dotted line. 

What do you ask?

So, what do you ask when they pick up the phone? Any question that you can think of! 
Consider making a list before you pick up the phone and make sure you ask everyone the same or similar questions. What’s on that list? How about these for starters:

  1. Are you glad you bought the franchise?
  2. Did you consider any other franchises before you bought this one?  If so, why did you choose this opportunity?
  3. Has the franchisor provided you with all of the assistance it agreed to provide?
  4. Was the training adequate?
  5. Does the franchisor seem interested in helping you achieve success or is it more interested in selling franchises or profiting from the operation of your franchise?
  6. Is your business successful?
  7. Were the initial investment costs provided by the franchisor accurate?
  8. How long did it take you to break even?
  9. Knowing what you now know, would you buy this franchise if you had the opportunity to do it over?

Will they answer?

Okay, you say. I can make a list of questions. I can call some franchisees. (Call them all!)
But what if they won’t talk to me? Move on. Not everyone will want to speak with you. Not everyone may tell you the truth. But one thing that you can know for sure is that each of these people was once in your shoes. At one time, they too were thinking about buying the very same franchise business that you are considering. And every one of them decided to take the leap.
Knowledge is power. Anything they tell you is more information than you have now. Plus, if you do buy the franchise, these people will be your fellow franchise business owners.  Why not introduce yourself now so that when you do join the system, you are already off to a good start getting to know your franchisee colleagues? You’ll be one step further to building relationships (friends!) and learning from their experiences as you build your business.

So, pay attention!

Before you sign on the dotted line, be sure you look at Item 20 of the FDD and make those phone calls! Because, whether you are thinking of buying a franchise or selling a franchise or other privately-held business or practice, details matter. Most issues can be addressed fairly early in the franchise/business selling/buying process, but only if you know those exposures exist. Protect yourself whether you are a buyer or seller. Consider retaining experienced franchise counsel to guide you through the franchise acquisition/disposition process. Still got questions? Feel free to email them to me, Julie Lusthaus, at [email protected]  and let’s talk.


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