How a Franchise Agreement and a Franchise Disclosure Document differ
There are two documents that are of vital importance...
“I want to buy a franchise; which one should I buy?” Sounds like a simple enough question, but is it really the right question to ask yourself first? Perhaps begin with: “What type of business do I see myself running?” “Do I want to flip hamburgers, run a dry cleaning business or maybe take care of the elderly?” “What are the current economic conditions in those industries and where are they headed?” “Do my strengths and business skills match any of the businesses I’m considering, and which of them most of all?” This kind of self-examination can ensure that you identify the right type of business for you. Then and only then is it right to ask, “Which franchise should I buy?”
However, a decision to buy a franchise raises further questions. Do you understand the franchise business model. A franchise system is like a family, you are tied together with a network of franchisees ultimately in relationship with the franchisor. The actions of the franchisor or other franchisees will likely affect your business. As the old saying goes, “one bad apple can spoil the bunch!” For example, if the franchisor does not “run a tight ship,” franchisees may run their businesses inconsistently and poorly, resulting in a devaluation of the brand.
What about the legal aspects to the franchise business model? Do you understand the rights and obligations of a franchisee in the franchise system. Also, as a franchisee you are operating your own business, but you have to follow the rules of the system. You cannot just change the business when you want to. Just as importantly, you may have to make changes to your business in the future required by the franchisor, that you do not support, understand or see as beneficial for your business. This is just the reality of being a franchisee. Do your research on how franchising works, and how the particular franchise that you are interested in operates, before finalizing your decision. How do you do that? Talk to your friends and family that may have operated or are operating a franchise and find out about their experiences. Franchise systems differ, they are not a one size fits all. Ask about the requirements of the systems they operate within, the fees/royalties, the level of autonomy, requirements of the system, mistakes made, benefits and disadvantages. This will give you a basis of comparison to the franchise you are considering purchasing.
Don’t stop there. Speak with suppliers, landlords and patrons. Talk to as many franchisees as possible, including those new to the system, the ones that have been around for a long time and some in between. In this way you may be able to ascertain how the franchise system is trending; up or down. There is nothing stopping you from doing this on an informal basis before submitting an application to the franchisor. It will save you time and effort.
The more research and analysis you do along the way, the better informed a decision you will be able to make and the more likely it will be that you will choose the best franchise for you.
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