Starting a Small Business:
How to Select a Franchise Business

 This section is not intended to convince anyone to acquire a franchise. It is presented as an aid to those who have decided to invest in, or who are seriously interested in investigating, one of the many franchise opportunities available today. The material presented is an index of basic information a person should have about a particular franchise to enable him to make a valid determination as to whether or not a specific franchise is the right one for him and whether or not the chances for returns both in terms of money and future are there. The section, in a questionnaire format, should be used to profile and evaluate the franchises you are investigating.

Franchising is a modern term for a more than fifty year old method of wholesale and retail product distribution. Although most of the franchise opportunities now in business have been started since 1954, franchising has been around for over a half of a century. It started with the automobile manufacturers, brewers, soft drink bottlers and oil companies. Now it has expanded to almost every kind of product or service, including business services, food, education, clothing, pets, lodging, etc.

In the past several years franchise companies have received much interest from Wall Street, not only because of the performance of franchise stocks, but also because of the entrance of major blue chip companies into the franchise field.

Franchising can be an answer for the man who wants to go into business for himself. One of the biggest mistakes you can make, however, is to be in a hurry to get into business. Therefore, if you shortcut the information gathering and evaluation programs outlined in this section, you might neglect to take a look at other franchises that are perhaps better and more suitable than the one selected, or you might be "pressured" into a franchise that is not right for you.

Although most franchises are managed by reputable businessmen, you should keep in mind that some may be poorly managed and financially weak. Also, as in all industries, there are those of questionable practices and those who have controls and restrictions that are so one sided (in their favor) that they are unreasonable. This section is intended to guide your franchise investigation in such a way that you can avoid involvement with those who are not reputable.

Before getting into a thorough evaluation of any franchise, here is a quick test that can save you much time, money and aggravation.

• Were you promised high profits in exchange for minimum effort?
• Did the representative pressure you to sign a contract immediately?
• Were you told that this was your last chance to sign and that if you did not, the opportunity would no longer be available?
• Did the representative refuse to answer any questions or did he refuse to give specific answers?
• Were you told of services such as training, management assistance, etc., without specific examples of each?
• Was the representative reluctant to give you a responsible list of references?
• Did you feel that the representative was more interested in selling you a franchise than he was in your being successful in business?
• Did the representative try to discourage you from having your attorney review the contract before you signed it?

In addition, it might be wise for you to call or visit one of the operating franchises and talk to the owner about his business and find out:

1. Does the franchisor deliver what he promises?

2. Based on the franchisee's experience with the franchisor does he consider him competent in the business of the franchise and does he consider the company itself to be well managed and responsive to franchisee's needs?

This section has been written in outline form so that it is easy to relate information from the index to the profile and vice versa. The basis of the section is a series of questions set up in major interest categories building one on the other so that at the end of the question process you will have a fairly complete picture of the franchise. You should have obtained a feel as to whether or not it is the right franchise for you. Also, in the process you will have weeded out the bad risks from the field of prospects.

Evaluating a franchise in the manner outlined in this section will take time and patience but results will make it worthwhile. If the franchisor refuses, without good reason, to go along with you in providing the information, be skeptical of his franchise. On the other hand it is easy to get tired along the way and decide to shortcut the questionnaire. A complete investigation of the business is the best way to insure against failure or getting taken by an unethical company. The money you will invest in a franchise has resulted from hard work. . . isn't it only proper to take time to determine the best way to use it?

In the Franchise Index, you will find a series of questions along with an explanation of what the answer should be and what it means or how to determine what the answer should be for the franchise you are interested in.

For example, question A-1-a deals with the reputation of the product or service sold by the franchisee. The logical answer is: ...Yes, I only want to deal in a business selling reputable products or services. How do you know without checking that this is the case. Naturally the franchisor will say his product or service is reputable; but is he telling you the truth? The discussion of this question tells you how to find out the answer.

Did you know that many franchises are not exclusive? In fact you might find yourself competing with the franchisor himself who is selling direct in a territory that you thought was yours exclusively. Question A-9-a and discussion tells you how to find this out.

In the Franchise Profile, the questions are repeated, this time, however, without the discussion section. Instead there are blanks to be filled in. When completed, this forms the profile of the franchise you are evaluating. It would be beneficial if you make your decisions as to what you want in a franchise as you read through this section. You can later use it as a check when you get into evaluating franchise prospects. You will find that it will also force you to make some decisions that up until now you have avoided.

For example, (Question A-2-b deals with your time. Do you plan to spend full or part time on the franchise? This is a basic decision you must make before becoming serious about any franchise.

Question 4c asks, "Does the forecast of income provide for your personal goals?" Here the answer includes an evaluation of the family budget plus the amount of money required to run the business. This determines the income that must be generated from the franchise.

b. Part of a growing market - The answer does not always have to be yes, since many markets are on the borderline between slow growth and "taking off" What you have to watch out for here is a declining market. The best place to check for information on growth or near growth is request marketing data from the franchisor, check with your broker, write to the trade magazine covering the market in question and check it out at your local business library.

c. Needed in your area - It is very important that you get a yes here. A snow-ski shop franchise would not go over too well in Florida. Make sure that the products or services have year round appeal in your area as well as being needed.

d. Of interest to you - Only you can answer this, and it is important since investment in a franchise should be viewed as a lifetime job. For example, if you enjoy repairing automobiles, a related franchise such as a service station or a muffler shop should be of interest. If you are a teacher, possibly a secretarial school or home study school franchise would be of interest.

e. Safe, protected and guaranteed - If a product rather than a service is involved be sure that it is safe, that it meets quality standards, and that there are no restrictions upon its use. Is the product protected by patent or liability insurance and is this same protection afforded to you as a franchisee? If a guarantee is involved, obtain a copy and be sure of your responsibilities and obligations as a franchisee.

c. Carry the name of a well-known personality - This can be good or bad. Assuming that the personality has and maintains a good reputation, it is important that he or she have an actual investment as opposed to being a figurehead and make substantial personal contributions of time and effort to promote the franchise to the mutual benefit of all franchisees. Do not be fooled by a glamour name. Make sure that the basic franchise is sound with or without the prominent name.

a. Local, regional, national or international - This answer is for information but does have a direct relationship to the franchise fee and also to the future. Chances are that a franchise that is now only local or regional is in the beginning or test stage and will go national once the test has proved successful. The national and international franchises are probably older and better established, also better known. The latter point is important to you particularly if your product is a consumer one such as the fast food or motel field.

b. Time requirements, part- or full-time - This depends on what you are looking for. Unfortunately, there are very few part-time franchises that are as good as they profess to be. Those that are good do involve a considerable amount of time if they are to be successful. There is no shortcut to a second income.

Also it is highly doubtful that you can sit back, as some part-time franchises profess, make some mailings, and watch the money roll in. Check the part-time franchises out just as thoroughly. as the full-time one. Not all of the 100 questions will apply. If you do get involved in a part-time endeavor, take a look and see whether or not it could later be expanded into a profitable full-time venture. This is a good test. Full-time franchises are what they say ...you have no other job and therefore no other income. Make sure that you have at least 1 year or possibly 2 years personal financial reserve left after you pay the franchise fee and put capital into your business. There are some franchises, usually in the personal service field, that can be started on a part time basis with the full time situation one or two years away.

a. How long was the company in business before the first franchise was awarded - This will tell you which came first ...the product idea or the desire to enter the franchise field. Favor should be given to the company that started before it entered the franchise business. A good example of why this is important is the value today of motel franchises, automobile dealerships, and soft drink bottlers.

b. What date was the company founded and what date was the first franchise awarded - Here we want to establish the period of time that the company was in business before it went the franchise route of distribution. Keep in mind that the dates you want are related to the franchise and not the parent company. In this day and age of mergers and acquisitions many major franchises are owned by major corporations. It would also be interesting to find out whether or not the original franchise is still in operation.

c. Number in operation and geographical spread - This will give you an idea as to the popularity of the franchise. This information coupled with the preceding answer will give you an idea as to whether or not this is an "overnight" growth pattern or a gradual pattern. The gradual pattern tends to give more stability, that is if the rate of failure is low. You should also find out whether or not there is a geographical cluster ... that is, are there a major number of existing franchises in one specific area; or are they evenly spread across the country. You will usually find a cluster around the home office area of the franchise. A cluster can be expected in the early stages; but, if a franchise claims to be national and if they have been in business three years or longer, the spread should be fairly even.

The franchisor should provide you with the name and address of several franchises in operation in markets like yours. For example, if your market is 60,000 in population you should compare with another 60,000 market. Call or visit these locations (more notes), at least one of which should be a relatively new franchise. Ask the questions that are of greatest concern to you. Try to get a feel as to whether or not you would like the work, could earn enough to support your family, etc.

d. Number planned next 12 months - Not all franchises will be able to give an answer to this question, yet it is a key factor to future growth. In some cases the attitude will be ...just as many as we can sell. In other cases a set objective has been established. Keep in mind that part of what you pay for in the franchise fee is service, advice, and training. If the home office is not planning properly they will not be geared to give what they promise. Look for a definitive answer and ask the additional question ...What are your plans for adding home office personnel to continue the same level of service, advice, and training for all franchises? Another way to look at future planning is to realize that as the number of franchises increases so does the national visibility, and this is as good as any advertising.

a. How many franchises have failed - The number is not the most important factor unless there is a high number in relation to the current number in operation. It would be good to find out how many of the failures were in the past 2 years. If the failure rate is high, perhaps the reasons have been corrected. If this is so, the failure rate would be clustered prior to the past 2 years.

b. Why have franchises failed - This is one of the most important questions that you can ask. It is also one of the most difficult for the franchisor to answer because it reflects on the franchise program. The answer to this is found in two ways. First, ask the franchisor why he thinks the franchises failed, have him list the reasons in order of importance. Then, ask for the names and addresses of franchisees who have failed. Contact them and ask the same question. Check the answers, if they agree, find out from the franchisor if the reasons have been corrected. If the answers from the franchisee and franchisor do not agree, discuss them with the franchisor and Find out why they do not agree. Remember, in talking to the franchisee that failed that he will probably be biased against the franchisor. On the other hand the franchisor might lay failure at the feet of the franchisee. Use your own judgment in this case and draw your own conclusions.

a. Has a franchise ever been awarded in this area - As will be covered later, many franchises (such as the multilevel distribution type) are on a nonexclusive basis, and therefore the franchise you are investigating might already be in operation in your market. This is not a negative, and, in fact, in the case of fast food and personal service franchises it is better to have several per market as each benefits from the visibility of the other. On the other hand, a franchise might have failed at some time in the past in your area. You should know why. The final point in regard to this question is the amount of interest on the part of others in this franchise in your area. If the interest is high, that means that there is a pretty good chance that the general interest level would be high on the part of customers. On the other hand, if the interest level is low, this could be a negative. Ask the franchisor for the franchisee inquiry count from your area. If there is a franchise in operation in your market, get the name and address of the owner, visit with him and discuss the franchise. He should be glad to answer your questions. Also, if there has been a failure get the name and address of the person involved and talk to him too.

a. Within 12 months - This may be either the result of past planning or the result of a need to improve sagging sales.

What you are looking for in this category is future growth. For example, in fast food what new product has been added, in the case of a business service franchise has income tax service been added, or have new courses been added to a school or home study program, etc.

b. Within 2 years - What is now in the planning stages? Perhaps the franchisor will not give specifics and this is understandable since this information would be of a confidential nature. Reasonable and reassuring answers should be available however. What you are looking for here are efforts to keep up with the market and its changing conditions. For example, if the franchise involves automobiles, is the future in tune with what is happening in that market with the problem of air pollution, etc.

c. Within 2 to 5 years - This would be more in corporate goals than in the planning stages at this time. Ask what are the long range corporate goals for the franchisor. See if they have thought beyond the next couple of years. This is important because chances are that your competition is concerned with the future, if your franchise is not, the future of your franchise could be dim.

a. What would my competition be - For the answer to this turn to the Yellow Pages. You might have to check more than one directory depending on the type of franchise you are considering. For example, if it is a fast food restaurant you would be interested in only the adjoining neighborhood: If the franchise is covering a wide area, you should check directories covering the total area. Call your telephone company business office for advice as to what directories cover the area and how to get them. Make a complete list of competition listing addresses and telephone numbers of all locations. Visit several of the major ones and observe appearance, traffic, and attempt to appraise the current situation. Make notes for future reference. If the franchise looks particularly good, talk to the manager and get the name of the franchisor. Write to them for the franchise package ...maybe it will be better than the one you are now investigating. The thing you want to accomplish here is to get a feel for competition ...can you do the job? ...is the market saturated with the product or service?

a. Are all outlets franchised or are some company owned - A recent development in franchising is the situation where franchise companies are buying back franchises so that stronger corporate control can be maintained. So far this has affected only major motel, restaurant, and fast food chains. You should find out whether or not all outlets are independent franchises. If not, how many are company owned. If there is evidence of recent company repurchase, find out what the repurchase agreement is.

b. Date of most recent company acquisition - If the answer to this is a recent date, then you are reasonably sure that a repurchase program is underway. That is unless the franchise was repurchased or taken over for contract violation. In the event the latter is the reason, it is not a negative but a strength indicating franchisor interest and policing program.

9. FRANCHISE DISTRIBUTION PATTERN

A major distribution pattern in the franchise industry, for both products and services, is the two-step method. Briefly, this means that the franchisor "packages" the product and sells it to distributors who in turn sell it to dealers who in turn sell it to the customer. The distributor usually covers a fairly large area. The dealer covers a very local area, usually his "backyard market."

a. Exclusive vs. nonexclusive - This can be a surprise since many franchises, contrary to what people think, are not exclusive as far as territory is concerned. In some cases, both the distributor and franchisor retain the right to sell direct in the franchisee territory. Also, they retain the right to sell more than one franchise in a given territory. There is nothing wrong with a nonexclusive franchise providing you are aware of the situation before you buy the franchise and want to work this way.

The obvious disadvantage of the nonexclusive franchise is a smaller sales potential. This should be spelled out to your satisfaction in the contract.

b. Distributorship vs. dealership - Which one of these is your franchise? You will find the distributorship costs considerably more than the dealership and at the same time requires more business knowledge and leadership capabilities. If you do not have a strong business background and financial reserves, stay away from the distributorship. Start with a dealership. It will be close to home, require less capital, and your time will be concentrated on the management of that particular location rather than a group of locations. The return, however, from the dealership is usually less than from the distributorship. If your franchise is a dealership, get the name and address of your distributor, visit with him and see whether or not you can get along with him. It will be the distributor with whom you will conduct much of your business not the franchisor.

10. FRANCHISE OPERATIONS

Some franchises can be operated from the home, others require office space, others manufacturing facilities, and others the actual construction of a building. If the franchise requires office space or the construction of a building, make sure the franchisor offers guidance and assistance as this is the most important initial role he will play in getting your business started.

a. What facilities are required - Determine what is needed. This is usually very evident in the literature that is provided about the franchise. Usually sales organizations can be operated from home or from shared office space; personnel agencies require leased office space; retail type franchises require leased store space; and most fast food outlets and education type franchises require buildings that have to be constructed.

b. Lease or build - In either situation there are things to look out for. For example, a lease is usually signed for a specific period of time ..one year, two years, etc. If it is a lease situation, be sure of the time involved. If the space leased is too small and not expandable and your business grows to the point you need additional space and your lease is not up, a penalty will be charged by the building management to break the lease. Construction is a different situation and a different set of considerations. Labor problems can delay completion, weather can be a major factor on completion, etc. These are things that any Realtor can tell you about. You should talk to one you know.

c. Getting started - If your franchise requires that customers come to your place of business (fast food outlets, home remodeling stores, income tax preparation, etc.) the critical point of getting started and the pivotal point on the success of your future business is the feasibility study. This should be done for you by the franchisor; if you are told to do it, view this as a negative. The feasibility study considers the experience gained by the franchisor in setting up successful franchises and applies it to your market. For example, the following information would be developed and evaluated: traffic count of various location possibilities, average income of the area, number of target prospects in the area (fast food would require high concentration of young families, etc.), and other factors critical to the success of the franchise. Part experience of the franchisor will tell what is required to assure the possible success of the franchise. You should make sure that any money "put down" on the basis of having the feasibility study conducted would be returned to you in the event the results are negative.

d. Construction - If you must build, once again the franchisor should be "your right hand man." In fact, he should guide you every step of the way. In checking what you get for the franchise fee you will find most times that this type of service is a major reason for a fee at all. If not offered, consider it a negative. Here you are getting into architecture and design landscaping, contract award, construction, decor and furnishing, and financing. The subject of financing is critical and will be covered in Section C-FINANCIAL AND LEGAL.

1. IS THE PRODUCT OR SERVICE

a. Considered reputable - What is the reputation of the company and its products or services. Remember, a customer will buy the first time on the promise of quality, but will not reorder if he does not get what was promised. To get the answer to this question talk to people who are familiar with the product, check it out yourself.

b. Part of a growing market - The answer does not always have to be yes, since many markets are on the borderline between slow growth and "taking off" What you have to watch out for here is a declining market. The best place to check for information on growth or near growth is request marketing data from the franchisor, check with your broker, write to the trade magazine covering the market in question and check it out at your local business library.

c. Needed in your area - It is very important that you get a yes here. A snow-ski shop franchise would not go over too well in Florida. Make sure that the products or services have year round appeal in your area as well as being needed.

d. Of interest to you - Only you can answer this, and it is important since investment in a franchise should be viewed as a lifetime job. For example, if you enjoy repairing automobiles, a related franchise such as a service station or a muffler shop should be of interest. If you are a teacher, possibly a secretarial school or home study school franchise would be of interest.

e. Safe, protected and guaranteed - If a product rather than a service is involved be sure that it is safe, that it meets quality standards, and that there are no restrictions upon its use. Is the product protected by patent or liability insurance and is this same protection afforded to you as a franchisee? If a guarantee is involved, obtain a copy and be sure of your responsibilities and obligations as a franchisee.

c. Carry the name of a well-known personality - This can be good or bad. Assuming that the personality has and maintains a good reputation, it is important that he or she have an actual investment as opposed to being a figurehead and make substantial personal contributions of time and effort to promote the franchise to the mutual benefit of all franchisees. Do not be fooled by a glamour name. Make sure that the basic franchise is sound with or without the prominent name.

a. Local, regional, national or international - This answer is for information but does have a direct relationship to the franchise fee and also to the future. Chances are that a franchise that is now only local or regional is in the beginning or test stage and will go national once the test has proved successful. The national and international franchises are probably older and better established, also better known. The latter point is important to you particularly if your product is a consumer one such as the fast food or motel field.

b. Time requirements, part- or full-time - This depends on what you are looking for. Unfortunately, there are very few part-time franchises that are as good as they profess to be. Those that are good do involve a considerable amount of time if they are to be successful. There is no shortcut to a second income.

Also it is highly doubtful that you can sit back, as some part-time franchises profess, make some mailings, and watch the money roll in. Check the part-time franchises out just as thoroughly. as the full-time one. Not all of the 100 questions will apply. If you do get involved in a part-time endeavor, take a look and see whether or not it could later be expanded into a profitable full-time venture. This is a good test. Full-time franchises are what they say ...you have no other job and therefore no other income. Make sure that you have at least 1 year or possibly 2 years personal financial reserve left after you pay the franchise fee and put capital into your business. There are some franchises, usually in the personal service field, that can be started on a part time basis with the full time situation one or two years away.

a. How long was the company in business before the first franchise was awarded - This will tell you which came first ...the product idea or the desire to enter the franchise field. Favor should be given to the company that started before it entered the franchise business. A good example of why this is important is the value today of motel franchises, automobile dealerships, and soft drink bottlers.

b. What date was the company founded and what date was the first franchise awarded - Here we want to establish the period of time that the company was in business before it went the franchise route of distribution. Keep in mind that the dates you want are related to the franchise and not the parent company. In this day and age of mergers and acquisitions many major franchises are owned by major corporations. It would also be interesting to find out whether or not the original franchise is still in operation.

c. Number in operation and geographical spread - This will give you an idea as to the popularity of the franchise. This information coupled with the preceding answer will give you an idea as to whether or not this is an "overnight" growth pattern or a gradual pattern. The gradual pattern tends to give more stability, that is if the rate of failure is low. You should also find out whether or not there is a geographical cluster ... that is, are there a major number of existing franchises in one specific area; or are they evenly spread across the country. You will usually find a cluster around the home office area of the franchise. A cluster can be expected in the early stages; but, if a franchise claims to be national and if they have been in business three years or longer, the spread should be fairly even.

The franchisor should provide you with the name and address of several franchises in operation in markets like yours. For example, if your market is 60,000 in population you should compare with another 60,000 market. Call or visit these locations (more notes), at least one of which should be a relatively new franchise. Ask the questions that are of greatest concern to you. Try to get a feel as to whether or not you would like the work, could earn enough to support your family, etc.

d. Number planned next 12 months - Not all franchises will be able to give an answer to this question, yet it is a key factor to future growth. In some cases the attitude will be ...just as many as we can sell. In other cases a set objective has been established. Keep in mind that part of what you pay for in the franchise fee is service, advice, and training. If the home office is not planning properly they will not be geared to give what they promise. Look for a definitive answer and ask the additional question ...What are your plans for adding home office personnel to continue the same level of service, advice, and training for all franchises? Another way to look at future planning is to realize that as the number of franchises increases so does the national visibility, and this is as good as any advertising.

a. How many franchises have failed - The number is not the most important factor unless there is a high number in relation to the current number in operation. It would be good to find out how many of the failures were in the past 2 years. If the failure rate is high, perhaps the reasons have been corrected. If this is so, the failure rate would be clustered prior to the past 2 years.

b. Why have franchises failed - This is one of the most important questions that you can ask. It is also one of the most difficult for the franchisor to answer because it reflects on the franchise program. The answer to this is found in two ways. First, ask the franchisor why he thinks the franchises failed, have him list the reasons in order of importance. Then, ask for the names and addresses of franchisees who have failed. Contact them and ask the same question. Check the answers, if they agree, find out from the franchisor if the reasons have been corrected. If the answers from the franchisee and franchisor do not agree, discuss them with the franchisor and Find out why they do not agree. Remember, in talking to the franchisee that failed that he will probably be biased against the franchisor. On the other hand the franchisor might lay failure at the feet of the franchisee. Use your own judgment in this case and draw your own conclusions.

a. Has a franchise ever been awarded in this area - As will be covered later, many franchises (such as the multilevel distribution type) are on a nonexclusive basis, and therefore the franchise you are investigating might already be in operation in your market. This is not a negative, and, in fact, in the case of fast food and personal service franchises it is better to have several per market as each benefits from the visibility of the other. On the other hand, a franchise might have failed at some time in the past in your area. You should know why. The final point in regard to this question is the amount of interest on the part of others in this franchise in your area. If the interest is high, that means that there is a pretty good chance that the general interest level would be high on the part of customers. On the other hand, if the interest level is low, this could be a negative. Ask the franchisor for the franchisee inquiry count from your area. If there is a franchise in operation in your market, get the name and address of the owner, visit with him and discuss the franchise. He should be glad to answer your questions. Also, if there has been a failure get the name and address of the person involved and talk to him too.

a. Within 12 months - This may be either the result of past planning or the result of a need to improve sagging sales.

What you are looking for in this category is future growth. For example, in fast food what new product has been added, in the case of a business service franchise has income tax service been added, or have new courses been added to a school or home study program, etc.

b. Within 2 years - What is now in the planning stages? Perhaps the franchisor will not give specifics and this is understandable since this information would be of a confidential nature. Reasonable and reassuring answers should be available however. What you are looking for here are efforts to keep up with the market and its changing conditions. For example, if the franchise involves automobiles, is the future in tune with what is happening in that market with the problem of air pollution, etc.

c. Within 2 to 5 years - This would be more in corporate goals than in the planning stages at this time. Ask what are the long range corporate goals for the franchisor. See if they have thought beyond the next couple of years. This is important because chances are that your competition is concerned with the future, if your franchise is not, the future of your franchise could be dim.

a. What would my competition be - For the answer to this turn to the Yellow Pages. You might have to check more than one directory depending on the type of franchise you are considering. For example, if it is a fast food restaurant you would be interested in only the adjoining neighborhood: If the franchise is covering a wide area, you should check directories covering the total area. Call your telephone company business office for advice as to what directories cover the area and how to get them. Make a complete list of competition listing addresses and telephone numbers of all locations. Visit several of the major ones and observe appearance, traffic, and attempt to appraise the current situation. Make notes for future reference. If the franchise looks particularly good, talk to the manager and get the name of the franchisor. Write to them for the franchise package ...maybe it will be better than the one you are now investigating. The thing you want to accomplish here is to get a feel for competition ...can you do the job? ...is the market saturated with the product or service?

a. Are all outlets franchised or are some company owned - A recent development in franchising is the situation where franchise companies are buying back franchises so that stronger corporate control can be maintained. So far this has affected only major motel, restaurant, and fast food chains. You should find out whether or not all outlets are independent franchises. If not, how many are company owned. If there is evidence of recent company repurchase, find out what the repurchase agreement is.

b. Date of most recent company acquisition - If the answer to this is a recent date, then you are reasonably sure that a repurchase program is underway. That is unless the franchise was repurchased or taken over for contract violation. In the event the latter is the reason, it is not a negative but a strength indicating franchisor interest and policing program.

9. FRANCHISE DISTRIBUTION PATTERN

A major distribution pattern in the franchise industry, for both products and services, is the two-step method. Briefly, this means that the franchisor "packages" the product and sells it to distributors who in turn sell it to dealers who in turn sell it to the customer. The distributor usually covers a fairly large area. The dealer covers a very local area, usually his "backyard market."

a. Exclusive vs. nonexclusive - This can be a surprise since many franchises, contrary to what people think, are not exclusive as far as territory is concerned. In some cases, both the distributor and franchisor retain the right to sell direct in the franchisee territory. Also, they retain the right to sell more than one franchise in a given territory. There is nothing wrong with a nonexclusive franchise providing you are aware of the situation before you buy the franchise and want to work this way.

The obvious disadvantage of the nonexclusive franchise is a smaller sales potential. This should be spelled out to your satisfaction in the contract.

b. Distributorship vs. dealership - Which one of these is your franchise? You will find the distributorship costs considerably more than the dealership and at the same time requires more business knowledge and leadership capabilities. If you do not have a strong business background and financial reserves, stay away from the distributorship. Start with a dealership. It will be close to home, require less capital, and your time will be concentrated on the management of that particular location rather than a group of locations. The return, however, from the dealership is usually less than from the distributorship. If your franchise is a dealership, get the name and address of your distributor, visit with him and see whether or not you can get along with him. It will be the distributor with whom you will conduct much of your business not the franchisor.

10. FRANCHISE OPERATIONS

Some franchises can be operated from the home, others require office space, others manufacturing facilities, and others the actual construction of a building. If the franchise requires office space or the construction of a building, make sure the franchisor offers guidance and assistance as this is the most important initial role he will play in getting your business started.

a. What facilities are required - Determine what is needed. This is usually very evident in the literature that is provided about the franchise. Usually sales organizations can be operated from home or from shared office space; personnel agencies require leased office space; retail type franchises require leased store space; and most fast food outlets and education type franchises require buildings that have to be constructed.

b. Lease or build - In either situation there are things to look out for. For example, a lease is usually signed for a specific period of time ..one year, two years, etc. If it is a lease situation, be sure of the time involved. If the space leased is too small and not expandable and your business grows to the point you need additional space and your lease is not up, a penalty will be charged by the building management to break the lease. Construction is a different situation and a different set of considerations. Labor problems can delay completion, weather can be a major factor on completion, etc. These are things that any Realtor can tell you about. You should talk to one you know.

c. Getting started - If your franchise requires that customers come to your place of business (fast food outlets, home remodeling stores, income tax preparation, etc.) the critical point of getting started and the pivotal point on the success of your future business is the feasibility study. This should be done for you by the franchisor; if you are told to do it, view this as a negative. The feasibility study considers the experience gained by the franchisor in setting up successful franchises and applies it to your market. For example, the following information would be developed and evaluated: traffic count of various location possibilities, average income of the area, number of target prospects in the area (fast food would require high concentration of young families, etc.), and other factors critical to the success of the franchise. Part experience of the franchisor will tell what is required to assure the possible success of the franchise. You should make sure that any money "put down" on the basis of having the feasibility study conducted would be returned to you in the event the results are negative.

The primary purpose of this section is to get enough information about the company to be convinced that they are reputable, financially strong, and recognized as a leader in the field.

a. Parent vs. franchise company - As outlined earlier, many times the franchise company is part of a larger company. In order to check thoroughly this should be known. Ask for, in addition to the same name and address of the franchise company, the name and address, if any, of the parent company. Remember that being part of a larger company can be a very important asset to you in terms of financial stability and visibility. Also, it won't hurt when dealing with a bank for financing.

b. Public vs. private company - Here you are concerned with the main or parent company. Find out whether or not you are dealing with a public (stock sold public) or a private (stock held by a small private group) company. Checking on a public company is a relatively easy matter, whereas checking on the private company is more difficult.

c. Public company checking - This can be done via published sources since the SEC requires disclosure of all stock traded public. Determine where the stock is traded.

With this information contact your stock broker, ask him to send you a stock report on the company. This report will give you all the basic information on the financial structure of the company you need. Look for rising trends in sales, profits, and earnings per share. The report will also give you the address of the company and the name of the officers including the treasurer. Write to him on a postal card requesting a copy of the most recent quarterly and annual reports, as well as product literature. It is best to mention that this information is for your investment program. From this literature you will learn all additional information you need to know about the company. If you do not have access to a stock broker, consult a local college or public library. Most of them will have standard reference volumes that contain information on most public companies.

In this section you want to determine exactly what you are getting in your franchise package, what you can expect to get in terms of return, and what does all that fine print say.

a. Lawyer - Before you sign anything and commit any money you should have a lawyer advise you and make sure that you understand what you are getting into. Make sure that you understand what legal liabilities are possible when you get into business and more importantly make sure these liabilities are covered by insurance, either your own or that of the franchisor. Check your own lawyer; if you do not have one, check with friends or another local small businessman and get the name of a qualified lawyer. Make sure the lawyer you select has interest and experience in advising small businessmen.

b. Financial - The balance of this section will outline questions of a financial nature. To be meaningful, figures must be interpreted by a "pro" ...an accountant. As in the case of the lawyer, find one who is knowledgeable in advising small businessmen. The best way to find a good accountant is to ask local small businessmen for a recommendation, or perhaps your local Chamber of Commerce might have a suggestion.

c. Management - Business management involves the merging of legal and financial structures with the overall running of the business. Check your local Chamber of Commerce to see what they have to offer. Discuss your proposed new business with a successful businessman and get his views.

a. How much money do I have to have to get started - Don't be fooled by claims such as "Your own business for only 3,500." Make out your own forecast of required finances and include franchise cost, first year operating expenses, and personal funds required for up to 2 years. Keep in mind that starting a business does not mean that the income will automatically come in. In some franchises you might go as long as six months before a penny flows into your bank account. In any event, there is start up time regardless of whether it is a personnel agency, fast food outlet, motel, rental agency, etc. I cite the 2 year period because this is the accepted break even "rule of thumb" for a new business. A franchise, however, should break even much earlier because part of what you are buying are proven products, programs, and procedures. In any event be wary of any franchisor that promises "riches" in less than 2 years. It just doesn't happen that way.

b. What do I have to pay the franchisor to get started - This consists primarily of two things ...franchise fee and inventory, and material or construction costs. Make sure you get a complete answer to this question. It's too late once you have started in business to discover the true costs are more than you can handle. Let's consider each of the elements that go to make up the initial amount you pay the franchisor...

c. Franchise fee - Is there a fee as such? If so, how much? What does it include? What you are paying for in the franchise fee is the right to use and promote a name and identification program. The value of this depends on how well known the name and trademark really are. This factor is directly related to marketing and your judgment should be guided by what you find out in Section E-Marketing. Two other areas are also covered by this fee ...initial training and home office assistance. Training is covered in Section D-Training, and Section F-Home Office Support. Ask the opinion of your lawyer and accountant and make sure you are getting true value for the fee. There are many good franchises that have no fee and others who will consider negotiating the fee.

d. Services - Are you paying for home office services as part of the initial franchise cost. If so, what are they? Find out what specifically you will get. Included here should be complete operating manuals on all phases of the operation. These should be updated as required. Also, is on the spot assistance of home office experts available? If so, who, when, what, how long, etc. In addition, find out whether or not the franchisor offers a computerized accounting system. Accounting is a costly and time consuming chore if you have to do it yourself, so this service from the franchisor is a plus.

e. Product - Does the initial cost include an "opening" inventory? Is the price fixed for this and reorder? Is the price competitive? Can you buy elsewhere more cheaply? Are you permitted to do so? Can you continue to do so? Get an itemized list including your cost and your cost to your customers. Check and see what percentage of your total initial cost can be recovered by the resale of the inventory. Also important in this evaluation is the cost to your customer:

1. Is the price competitive with equal products?

2. Is the quality worth the price?

3. Will the customer be a repeat customer based on the quality of the product?

f. Real Estate - How much of the initial money required is for the purchase of land and/or construction of your place of business?

g. Equipment and fixtures - Is the cost of start up equipment and fixtures included in the initial costs? Does the franchisor have an equipment subsidiary from which you can purchase all equipment, furniture, and supplies at a favorable cost? Are they priced competitively? Could you save money buying them elsewhere? If so, can you? If all the supplies and equipment you need are not included in the package price then you must allow for this in your personal start up costs. Personal service type franchises will usually require only office furnishings; whereas fast food and education franchises will usually require a physical plant and various types of equipment and supplies.

h. Other - Always check to see if there are any unique features of the franchise. If so, are they part of the initial cost. Also, are there any "employee benefits." Some franchises include benefit programs of life insurance, hospital insurance, and retirement plans.

i. Is any of the initial cost refundable - Some franchises make it possible to get back the cost of the franchise fee if the franchise is successful and maintains a predefined sales volume. This is a good thing to look for ...it provides a real incentive for the franchise to "stick with it" and "follow the rules." If there is such a plan, find out exactly what it is and make sure it is covered in your franchise agreement.

a. Is part of the initial cost to the franchisee financed - In most cases where the start up costs are high the franchisor will finance a portion of the cost. Usually they will require that you pay the franchise fee in cash. Then on the basis of an acceptable financial statement they will finance the balance of the start up costs.

b. What is the interest rate - Find out what the interest rate is and check around and see if you can do better. Remember that many franchise companies have finance company subsidiaries whose business it is to lend money to the franchisee. Make sure they are competitive. Check your local bank. Get the best deal you can since every dollar you can save in interest is a profit dollar for you.

4. FORECAST OF INCOME AND EXPENSES

The forecast, the product or service to be sold, and the written agreement are the three most important areas that must be considered in the evaluation of a franchise. Evaluation of the product has already been covered, the agreement will be discussed later in this section. Remember in computing the forecast of income and expenses that this should be based on the experience of successful franchises and a conservative forecast of sales. Don't be carried away by good looking figures that show amazing profits at the end of one or even two years.

a. Is a forecast of income and expenses provided - Ask this question and get a copy if the answer is yes. Ask your accountant to review it and if he does not agree with the franchisor have him prepare one. Review the two opinions with the franchisor and require that he provide reasonable answers for the differences. Also check some current franchisees and ask them the same questions. If the franchisor does not supply a valid forecast of income and expenses in writing or if he cannot give reasonable answers to your questions, consider these as strong negatives against purchasing the franchise.

b. Does the forecast relate to your market area - This consideration relates back to the initial section and the question "Needed in your area." If the need is there the chances are very good that the forecast can be projected to relate to your market. Make sure, however, that this is the case. Find out if the forecast is based on experience, if so make sure that the forecast you follow is based on a market equal in size to your own and compatible with the profile of your market demographics (average age, income, race, family size, property value, etc.).

c. Does the forecast provide to meet your personal goals - Is there sufficient income so that you can meet expenses and payroll and at the time pay yourself a salary that will support your family in the way you want to? Only you know the answer to this. A good idea is to put the family budget on paper. Start by listing month by month all regular expenses. Then take annual costs such as medical, clothing, recreation, etc. and divide them equally assigning a portion to each month. This gives you a monthly "break even" point for the family. What you will be doing is paying regular bills as they come up and building an escrow account for the annual type bills. Savings, when you are building your own business, will probably not be possible for awhile; but remember every day you operate a successful business you are building an equity which will be your future.

d. Does the forecast show an adequate return on investment - In starting your own business you are investing in yourself. Like any investment you expect a return on the principal invested as well as safety of the principal. See that the return you have set as your goal is there. (This is in addition to the money you take out as salary.)

e. Does the forecast provide for adequate promotion and personnel - Sales to obtain orders and people to fill them are the key factors to the success of any business. One without the other can spell disaster. Make sure that there is adequate money assigned to the payroll and advertising promotion accounts. The latter will be covered in Section E-Marketing.

5. WHAT IS THE PROPER LEGAL STRUCTURE FOR MY COMPANY

There are six points, in addition to tax considerations, that are significant in determining the proper legal structure. They are cost and procedures in starting, size of risk, continuity of operations, adaptability of administration, influences of applicable law, and attraction of additional capital. Use your lawyer on determining the answer. The following are the three main choices for legal structure.

a. Proprietorship - The easiest to begin and end, can have the most flexible purpose for its operations, need no Government approval, has business profits taxed as personal income, and makes the owner personally liable for debts and taxes.

b. Partnership - This is the simplest for two or more people to start and terminate, has the same flexibility of objective, has partners taxed separately, and makes all except limited partners personally liable for debts and taxes.

c. Corporation - This is the most formal of structures, operates under laws, has continuous and separate legal life, has its scope of activity and name restricted by a charter, has the business' profits taxed separately from earnings of executives and owners, and makes only the company (not the owners nor managers) liable for its debts and taxes.

6. ARE ALL DETAILS COVERED IN A WRITTEN FRANCHISE CONTRACT

This is the instrument that is the formal understanding between the franchisor and franchisee. All the major points about your franchise should be spelled out there. Do not accept the "gentleman's agreement" from a representative of the franchisor ...get it in writing. Have both your lawyer and accountant review the contract before signing.

a. What to look for - Once again be guided by your lawyer and accountant but be sure to look for franchise fee; termination, selling, and renewal clauses; cooperative advertising and promotion funds; does franshisor patent and liability insurance protection extend To the franchisee; are the home office services spelled out; are all the details as to commissions, royalties, etc. spelled out; is the training program and who pays for what spelled out; are financing and financing details spelled out including repayment and interest; is the territory covered outlined, is it exclusive or nonexclusive, and can the franchisor or his representative sell direct in your area.

One of the unique features of franchising is that it provides an opportunity for a person to enter a business that is of interest to him but about which he knows nothing. The franchisor assumes the role of educator and is responsible for the training and education of the franchisee and his staff. This training should be very concentrated at the start and should be continuing to keep the franchisee and his staff current and up to date as far as new products, techniques, methods of operation, etc.

1. INITIAL TRAINING

This is the critical area. What does the franchisor provide in the way of a training school to teach you the business of your franchise, how to operate your business, how to recruit and train personnel, etc. In other words a "How to" course. Usually this training is of a formal nature and conducted at the home office.

a. Duration - This of course depends on the franchise and how complicated the business is. It can range from one day to two months. how long is your initial training program? Equally important here is what happens after you have "graduated." Are you sent home to run your business; or does a field representative work with you at home to give you "on the job training" and guide you as you start out. If "on the job" assistance is not provided by the franchisor this should be considered a negative. Remember here that while you are gone from home you will not be generating any income. There are, however, some franchises that pay you while you learn. This should be the case when the training period is quite long.

b. Cost - This should be part of your franchise contract. Usually your franchise fee includes the cost of training, supplies, and your personal expenses while training. Check and make sure that this is the case. See that everything is covered including transportation, room and board, as well as training and supplies.

c. Curriculum - What is included in the training program? The franchisor should be able to provide you with a training schedule so that you can see what is included. If you are dealing with a reputable franchisor you will have no problem here since the success of your business, and therefore his, is determined by how well you know your business. Also, as was pointed out before, successful franchises follow a prescribed program and you can only learn the program through training. Make sure that the following is covered: franchise operations, sales, finance, promotion, personnel, management, manufacturing and maintenance (if franchise includes this), and training.

d. Staff Training - In many franchises you will be hiring employees who have to be trained. Usually this becomes the job of the franchisee and field trainers of the franchisor. Very seldom does the franchisor provide employee training at the home office. There are exceptions to this of course. Check and find out which is the case with your franchise. If the job becomes yours there are two things to find out ..do you get assistance from the home office in the form of a field representative to help with the training and what is the training program provided. Training is not as difficult as it may sound. Most franchisors have "canned training programs" which are on video. The franchise package usually includes all that is needed to run the program including manuals, samples, etc. Find out exactly how this will be handled and what you will get.

2. CONTINUING TRAINING

You have to stay up to date to get ahead. It's as simple as that. Things change every day and your success depends on how current your business is. For example, if you have a fast food outlet and teenage fads change to the point that what you offer is no longer "in," what do you do? Once again you look to the franchisor to keep you and your staff up to date through continuous training.

a. Program - What is the specific program of continuous training. Is there a formal "refresher course" for franchise principals? Are the staff training programs updated regularly? Are there seminars? Is there a constant flow of home office educational materials? Request samples.

b. Cost - What is the cost of the continuing program? Is it part of the franchise package or does it cost additional?

c. Materials - You should be given a complete list of training materials as well as an outlining of both initial and continuing training programs.

This is the lifeblood of your franchise once you are in business.

How you market, or sell, your product or services is important because it determines size of staff, capital required, and most important of all the type of work you will be devoting your future to. It is important that you understand how you will market your products or services. In some cases you do selling only, the franchisor provides the leads; in other cases it is up to the franchisee to generate leads and follow up on them. Also important is who will be your prospects and customers.

. HOW IS THE PRODUCT OR SERVICE SOLD

There are different methods of selling. For example, a cosmetics franchise might require cold canvass, door-to-door; a technical school franchise would probably be in-home by appointment; a bill collecting agency will probably be a combination of direct mail and telephone; fast food outlets and other retail franchises would be instore sales; and most franchises selling to business executives would involve selling at the prospect's place of business by appointment. Which of these, or possibly a combination of two or more, is the selling method of your franchise?

2. HOW DO YOU GET THE SALES LEADS

This takes various forms. In some cases the franchisor through national advertising, public relations, and direct mail generates all the leads and turns them over to the franchisee for follow-up. The other extreme is that the franchisee has to secure his own leads either with or without cooperative advertising support from the franchisor. (If this is the case, is it provided for in the forecast?) An important thing to remember is that a satisfied customer is your best advertisement. There should be a technique to get referral prospects from your satisfied customers. Other methods of securing sales leads are telephone solicitation and trade show booths. Trade show attendance is usually handled by the franchisor or a distributor.

3. WHO ARE THE PROSPECTS FOR THE PRODUCTS OR SERVICES

It is imperative that you know who your prospects are. In most businesses an accurate rule of thumb is 20 percent of your customers account for 80 percent of your business. You need to know who that 20 percent is for your franchise. In consumer products the profile of your best customer will probably be described by age, sex, and income; whereas your best business customer would be described by type of business, annual sales volume, number of employees, and title of purchaser. Ask for a profile of the prospect. If this information is not available it should be viewed as a negative.

4. WHAT IS THE NATIONAL ADVERTISING PROGRAM OF THE FRANCHISOR

The answer you get to this question depends on the way you ask it. Most franchises are sold via ads much like the one you probably answered. Many franchisors will include the franchise sales advertising program as part of the answer to how much they are spending in advertising. Others will include the dollar value of publicity appearing in newspapers, magazines or on radio and TV. What you want to know is what is the national advertising program promoting the products or services of the franchise to the prospective customers. Public media such as television, radio, newspaper, magazine, and outdoor are important to the visibility of the product and franchise trademark. Remember the franchise fee you pay is for the use of these; and therefore make sure they are properly and effectively promoted. Direct mail if it is local or supporting franchise sales should not be considered as part of the national program. Samples of the national advertising should be available to prospective franchisees. You should find out where the advertising runs so that you can look for it and form your own opinion as to its effectiveness.

5. WHAT KIND OF ADVERTISING AND PROMOTION SUPPORT IS AVAILABLE FOR THE LOCAL FRANCHISEE

This is the local advertising and promotion program in support of your franchise in your market. This should be an extension of the national program ...make sure it is. For this reason the franchisor should supply packaged programs for your use. These programs should include ad mats, radio scripts, TV commercials, sample media programs, direct mail programs, point of purchase material, sample publicity releases and accompanying photographs, etc. Refer to the section on finance for a discussion of coop advertising. The establishment of your business is news. Does the franchisor provide plans for a grand opening; including advertising, publicity, etc. Ask to see a sample kit.

6. SHOULD YOU HAVE AN ADVERTISING AGENCY

Even though you will be in business for yourself your success is tied directly to the franchisor and therefore you should look to your home office as a branch manager of a company would look to his home office. For the most part the home office of the franchisor will consist primarily of people as opposed to manufacturing facilities, warehousing, etc. You will probably find that the number of home office personnel might seem low when compared to companies with company owned distribution systems. It is important to keep in mind, therefore, that it is not quantity but quality that is important to you. For example, a technical school franchise would be expected to have persons on staff who have backgrounds in education; also there should be education experts serving either as directors or consultants. In this section therefore you want to find out the qualifications of the franchisor in respect to the product or service of the franchise.

a. Principals - Who are the key persons in the day to day operation of the business? What are their backgrounds and accomplishments? If all have financial and or sales backgrounds and no particular experience in the field of the franchise this should be considered a negative. Look for sound business and financial experience and a depth of expertise in the business of the franchise. For example, if the franchise is in the automotive field you would expect to find that some of the principals came from automotive companies. If the franchise is in the motel field you would expect experience from one of the major motel chains.

b. Directors - Who are the members of the board of directors? These board members usually serve without pay and many times are majority stockholders. What you are looking for are directors who have backgrounds related to the business of the franchise. The more the better for you. Also it is always good to find the following on the board: officer of a bank, professor of a university, and officers of major companies.

a. Consultants - Somewhere in between the principals and the directors fit the consultants. These are people who are specialists in specific fields and sell their services on a retainer basis to companies needing strength in the particular area the consultant serves. There are transportation consultants, medical consultants, marketing consultants, management consultants, etc. Check and see if the franchisor has "beefed up home office capability" with any consultants. Find out who they are and a little bit about them.

a. Service departments - These departments are what the title says ...service. They are in existence to be of service to the franchisee so it is in your best interests to find out what they are, who is in charge, what is his background, and the specific services they provide. Other sections have covered what services you may want. Critical departments to look for are: finance and accounting, advertising and promotion, sales and marketing, research and development, real-estate, construction, personnel and training, manufacturing, and operations. In addition to the departments covered earlier two others mentioned above are very important. Research and Development is the lifeblood to any organization since it is charged with plotting the future of the product or service line. This should be an active department with an adequate budget. Also the operations department (many other names are assigned to this) with which you will have much of your contact is most important. This is the department that is charged with the responsibility of liaison between franchisor and franchisee. In the case of a distribution set up, the distributor works through the operations department and the local franchisee through the distributor. In any event make sure that there is a clear channel of communication between you and your distributor or franchisor.

As you read through the questions, you will notice that some of them will require you to do a little homework before you can effectively evaluate a franchise. For example, you must know what your personal living expenses are before you can determine if the forecast of profits is sufficient. Depending on how much you know about the business of the franchise, you will have to think about what you will need in a training program. You might also think about and make decisions about how much capital you have and what financing you will need.

On the other hand, some questions must be researched before you can evaluate them. For example, the franchisor must supply the names of franchisees that failed. the Franchise Index suggests two sources of information for the reasons why the franchisees failed. Also, the answers to some questions must be weighed against the entire package. What you will need in advertising will depend on the type of product, the area to be serviced, etc.

As you prepare your profile, note that the questions become increasingly more specific. An early negative reply to one of the more general questions might carry enough weight to discourage further consideration of that franchise. Be aware of this possibility and you may save considerable time and effort in the information gathering stage of the evaluation. It is suggested that you make a copy of the Franchise Profile for each franchise you intend to evaluate. By having a similar format for each franchise profile, it will be easier to compare them.

1. IS THE PRODUCT OR SERVICE:

Yes / No

a. Considered reputable ____ ____

b. Part of a growing market ____ ____

c. Needed in your area ____ ____

d. Of interest to you ____ ____

e. Safe ____ ____

Protected ____ ____

Covered by guarantee ____ ____

f. Carry the name of a well known personality ____ ____

Sound franchise without well known personality ____ ____

2. IS THE FRANCHISE:

a. Local ____ ____

Regional ____ ____

National ____ ____

International ____ ____

b. Full time ____ ____

Part time ____ ____

Full time possible in future ____ ____

3. EXISTING FRANCHISES:

a. How long was the company in business before the first franchise was awarded? ______ years.

b. What date was the company founded and what date was the first franchise awarded? Company founded _____. First franchise awarded _____.

c. Number currently in operation or under construction? _____ . Information on those to contact:

Franchise # 1: Owner __________________

Address __________________

Telephone __________________

Date Started __________________

Franchise #2: Owner __________________

Address __________________

Telephone __________________

Date Started __________________

Franchise #3: Owner __________________

Address __________________

Telephone __________________

Date Started __________________

Franchise #4: Owner __________________

Address __________________

Telephone __________________

Date Started __________________

d. How many franchises are planned for the next 12 months (not including those awarded and not yet in operation)? __________________

4. WHY HAVE FRANCHISES FAILED?

a. How many franchises have failed? __________________ How many of these have been in the last 2 years? __________________

b. Why have franchises failed?

Franchisor Reasons: __________________

Franchisee: ______________________________________________________

5. FRANCHISE IN LOCAL MARKET AREA

a. Has a franchise ever been awarded in this area? __________________. If so and if it is still in operation:

Owner __________________

Address __________________

Telephone __________________ Date started __________________

If so and if it is no longer in operation:

Person involved __________________

Address __________________

Date started __________________ Date ended __________________

Reasons for failure __________________

How many inquiries have you had for your franchise from my area in the past 6 months? __________________ .

6. WHAT PRODUCT OR SERVICE WILL BE ADDED TO FRANCHISE PACKAGE?

a. Within 12 months? __________________

b. Within 2 years? __________________

c. Within 2 to 5 years? __________________

7. COMPETITION?

a. What is my competition? __________________

8. ARE ALL FRANCHISES INDEPENDENTLY OWNED?

a. Of the total outlets, _____ are franchised, and _____ are company owned.

b. If some outlets are company owned did they start out this way _____ or were they repurchased from a franchisee _____. Date of most recent company acquisition __________________ .

9. FRANCHISE DISTRIBUTION PATTERN:

a. Is the franchise exclusive _____ or nonexclusive _____.

b. Is the franchise a distributorship _____ or a dealership _____. If it is a dealership who is the distributor in my area:

Name __________________

Address __________________

How long has he been a distributor __________________

10. FRANCHISE OPERATIONS:

a. and b. What facilities are required and do I lease or build.

Operated out of home _____ Build Lease

Office ____ ____

Building ____ ____

Manufacturing facility ____ ____

Warehouse ____ ____

c and d. Getting started ... who is responsible for what?

Franchisor Franchisee

Feasibility Study _________ _________

Design _________ _________

Construction _________ _________

Furnishing _________ _________

Financing _________ _________

1. THE COMPANY:

1. THE COMPANY:

a. What is the name and address of the parent company if different than the franchise company:

Name ________________

Address ______________

b. Is the parent company public _____ or private _____.

c. If the company is public where is the stock traded: ______________________________

d. If the company is private the president is _____________.

The following bank can be used as a reference.

Name ___________________

Address _________________

Person to contact __________

1. WHERE TO GET ADVICE:

a. lawyer

Name _________________

Address _________________

Telephone ________________

b. Financial

Name _________________

Address _________________

Telephone _________________

c. Management

Name _________________

Address _________________

Telephone _________________

2. TOTAL FRANCHISE COST:

a. How much money do I have to have to get started?

Item Amount

Franchise start up (2b) ________

First year operating ________

First year personal ________

TOTAL ________

b. through h. What do I have to pay the franchisor to get started? ________

Basis of cost:

Item Amount

Franchise Fee ________

Services ________

Product ________

Real Estate ________

Equipment ________

c. Is any of the initial franchise cost refundable? ___________ .

If so, on what basis? _______________

3. FINANCING:

a. Is part of the initial cost to the franchisee financed? __________.

If so how much ______________, this represents ___________% of the total initial cost.

b. What is the interest rate? ______ %. When does financing have to be paid back? ________

4. FORECAST OF INCOME AND EXPENSES:

a. Is a forecast of income and expenses provided? ______.

Is it:

based on actual franchise operations? _____

based on a franchisor outlet? _____

purely estimated? _____

b. through e. If a forecast is provided does it:

Yes / No

Relate to your market area ____ ____

Meet your personal goals ____ ____

Provide adequate return on investment ____ ____

Provide for adequate promotion and personnel ____ ____

5. WHAT IS THE BEST LEGAL STRUCTURE FOR MY COMPANY?

a. through c.

Proprietorship ______

Partnership ________

Corporation ________

6. ARE ALL DETAILS COVERED IN A WRITTEN FRANCHISE CONTRACT?

Yes ____ No _____ (get copy for lawyer and accountant review)

a. What to look for - are these included?

Yes / No

Franchise fee ___ ___

Termination ___ ___

Selling and renewal ___ ___

Advertising and promotion ___ ___

Patent and liability protection ___ ___

Home office services ___ ___

Commissions and royalties ___ ___

Training ___ ___

Financing ___ ___

Territory ___ ___

Exclusive vs. nonexclusive ___ ___

1. INITIAL TRAINING:

a. Does franchisor provide formal initial training? _____

If so how long does it last? _________

b. Cost

Yes / No

Included in franchise cost ___ ___

Includes all materials ___ ___

Includes transportation ___ ___

Includes room and board ___ ___

If not included in franchise cost what is total cost including all outlined above?____________

c. What does the training course include?

Yes / No

Franchise operations ___ ___

Sales ___ ___

Finance ___ ___

Promotion ___ ___

Personnel ___ ___

Management ___ ___

Manufacturing and maintenance ___ ___

Training ___ ___

d. How do you train your initial staff? Is a training program provided?____. Does the franchisor make available a staff member from the home office to assist? ______. What materials are included in the staff' training program? __________________________________________

2. CONTINUING TRAINING:

a. thru c. What is the continuing program? Is there any cost? ______. If so how much _______. Are there any special materials or equipment required? __________ . If so what? __________.

What is the cost to the franchisee? __________________________.

E. MARKETING:

1. How is the product or service sold?

Yes / No

In home - appointment ___ ___

In home - cold ___ ___

Telephone ___ ___

In store or place of business ___ ___

At business - appointment ___ ___

At business - cold ___ ___

Mail ___ ___

2. How do you get the sales leads

Yes / No

Franchisor ___ ___

Franchisee ___ ___

Both ___ ___

Advertising ___ ___

Direct Mail ___ ___

Telephone ___ ___

Trade Shows ___ ___

3. Who are the prospects for the products or services?

Outline a brief profile: ________________________________________________________

4.What is the national advertising program of the franchisor?

a. What it the national advertising budget? _________________.

b. What are the primary advertising media?

Television ________

Radio ________

Outdoor ________

Newspaper ________

Magazine ________

Direct Mail ________

5. What kind of advertising and promotion support is available for the local franchise?

Yes / No

Is a packaged advertising program available? ____ ____

Is there a co-op advertising program? ____ ____

Is there a grand opening package? ____ ____

6. Should you have an advertising agency? ___________

1. PRINCIPALS AND DIRECTORS:

1. PRINCIPALS AND DIRECTORS:

a. Who are the key persons in the day to day operation of the business:

Name                 Title                   Background

____________ ________ ____________________

____________ ________ ____________________

____________ ________ ____________________

____________ ________ ____________________

____________ ________ ____________________

b. Who are the directors (do not include those from a. above)?

Name                   Business Association

________________ _____________________

________________ _____________________

________________ _____________________

2.CONSULTANTS:

a. Who are the consultants to the company?

Name                   Business Specialty

________________ _____________________

________________ _____________________

3. SERVICE DEPARTMENTS:

a. What service departments do you have? Yes / No

Finance and accounting ____ ____

Advertising and promotion ____ ____

Sales and marketing ____ ____

Research and development ____ ____

Real estate ____ ____

Construction ____ ____

Personnel and training ____ ____

Manufacturing and operations ____ ____

Purchasing ____ ____

______________ ____ ____

______________ ____ ____

4. FIELD SUPPORT:

a. Do you have field man assigned to working with a set number of franchises? __________

Who would be assigned to my franchise? __________

How many other franchises is he assigned to? __________