Opening a franchise business comes with quite a few benefits. You get many of the advantages of owning your own business, plus on-going support from the franchise company.
If you’re considering opening a franchise business, there is a lot to take into account. Depending on your industry, you likely have a few choices in franchise brands and want to make the best, most informed decision possible.
The importance of the Franchise Disclosure Document (FDD)
Many of your questions will be answered by the Franchise Disclosure Document (FDD). The FDD is a comprehensive document franchisors are required to share with prospective franchisees. It contains 23 “items” detailing important information about the franchise company, how it operates, and your responsibilities should you chose to enter into the agreement. Here are some questions a FDD will answer:
- What are the upfront fees? – The franchisor will let you know the initial fees you will pay and how the amounts are calculated in item 5
- What initial investment is required? – In addition to franchise fees, the initial investment you’ll have to make will be estimated in item 7
- Does the franchisor offer any financing? – If the franchisor is willing to assist you with financing, they’ll let you know in item 10
- What will your territory be? – Your location’s territory will be outlined in item 12
The importance of item 19
The FDD provides a wealth of information but what you really want to know is how much money you can expect to make. This information is included in item 19 “Financial Performance Representations,” however the franchisor is not required to include it.
Your potential franchisor will hopefully provide this information. If they don’t, you should still inquire about earnings potential. The franchise company has likely researched the viability of the location you’re considering and will have some idea of what you can hope to earn.
Other questions to ask
A FDD with item 19 will answer a lot of your questions but not all of them. Here are few more you should run by the franchisor:
What’s the franchisor's long-term business plan?
As you review the FDD, you’ll get some idea of the franchisor’s long-term plans. However, you should still ask what their goals are for future and how they plan to accomplish them. This information will be especially valuable if you hope to eventually operate multiple units.
What’s the franchisor's marketing strategy?
One of the biggest advantages of owning a franchise business is much of the marketing is done for you. The franchise company is often a large business with big budgets and lots of resources that can be used to reach a mass of potential customers.
Be sure to ask the franchisor what their marketing strategy is and how they plan to promote your particular location.
What technology does the franchisor recommend I use?
New technology is improving the way small businesses operate. Ask your prospective franchisor what technology they suggest? If they recommend specific solutions for different back office responsibilities, that’s a good sign.
Does the franchisor provide any training or supplemental support?
Any franchisor you enter into an agreement with should care about your business’s success. Ask them if they provide any business management, financial, or other types of training. It can also be beneficial to ask if they recommend a particular accountant, bookkeeper, tax preparer, or other partner who understands your industry.
Selecting the right franchise for you doesn’t have to be an intimidating endeavor. You’ll find that a detailed FDD and asking the right questions will help you make the right decision.
BookKeeping Express (BKE) provides accounting and bookkeeping services for leading franchise brands. Visit our multi-unit businesses and franchises page to learn more.