Checklist for franchise or small business suitability #2

To help determine how fit you are for buying and running a franchise operation or small business, use the following checklist for evaluating your suitablity as a franchise or small business buyer:

Personal questions

• Are you and your spouse physically able to handle the emotional and physical strain involved in operating a franchise or small business, caused by long hours and tedious administrative chores?
• Will your family members, particularly small children, suffer from your absence for several years while you build up your business?
• Are you prepared to give up some independence of action in exchange for the advantages the franchise offers you?
• Have you really examined the type of franchise or business you desire and truthfully concluded that you would enjoy running it for several years or until retirement?
• Have you and your spouse had recent physicals?
• Is the present state of your health and that of your spouse good?
• Do you and your spouse enjoy working with others?
• Do you have the ability and experience to work smoothly and profitably with your franchisor, your employees and your customers?
• Have you asked your friends and relatives for their candid opinions as to your emotional, mental and physical suitability to running your own business?
• Do you have a capable, willing heir to take over the business if you become disabled?
• If the franchise or new business is not near your present home, do you realize that it would not be beneficial to sell your home and buy one closer until the new venture is successful?

Business questions

• Do you and your spouse have past experience in business that will qualify you for the particular type of franchise or business you desire?
• Is it possible for either you or your spouse to become employed in the type of business you seek to buy before any purchase?
• Have you conducted independent research on the industry you are contemplating entering?
• If you have made your choice of franchises, have you researched the background and experience of your prospective franchisor?
• Have you determined whether the product or service you propose to sell has a market in your prospective territory at the prices you will have to charge?
• What will the market for your product or service be like five years from now?
• What competition exists in your prospective territory already?
• From franchise businesses?
• From non-franchise businesses?
  

Checklist for franchise or small business suitability #1

To help determine how fit you are for buying and running a franchise operation or small business, use the following checklist for evaluating your suitablity as a franchise or small business buyer:

Financial questions

• Have you and your spouse and knowledgeable family members discussed the idea of going into business for yourselves?
• Are you in complete agreement?
• Do you have the financial resources required to buy a franchise or small business? If not, where are you going to get the capital?
• Are you and your spouse ready to make the necessary sacrifices in the way of money and time in order to operate a franchise or small business?
• Will the possible loss of company benefits, including retirement plans, be outweighed by the potential monetary and self-pride rewards that would come from owning your own business?
• Have you made a thorough written balance sheet of your assets and liabilities, as well as liquid cash resources?
• Will your savings provide you with a cushion for at least one year after you have paid for the franchise or small business, allowing a one-year period of time to break even?
• Do you have additional sources of financing, including friends or relatives who might be able to loan you money in the event that your initial financing proves inadequate?
• Do you realize that most new businesses, including franchises, generally do not break even for at least one year after opening?
• Will one of you remain employed at your current occupation while the franchise or small business is in its initial, pre-profit stage?

Other considerations

• Do you know an experienced, business-oriented franchise attorney who can evaluate the franchise contract you are considering?
• Do you know an experienced, business-minded accountant?
• Have you prepared a business plan for the franchise or business of your choice?
  

Are you franchise material?

You need to consider if you are cut out to be a franchise owner and operator. To do this, you need to take a hard look at yourself and evaluate how you would handle the responsibilities and operations of a franchise. Obviously, you want to do this before you make what could be the biggest investment of your life. Check it out first with an experienced franchise attorney before you sign or pay any money.

Most people have the notion that in franchising a lot of money can be made with a minimum of effort. This is a serious misconception. The franchisee who works the hardest profits the most from a franchise business. Initially atleast, you must be able to make sacrifices. You must lay a strong foundation even for the most successful franchise operation. Be prepared to put in long hours of hard work and, above all, to be disappointed by your employees to a certain extent. The extent of this disappointment is directly related to how good you are at selecting and supervising people. The next consideration is how well you are organized. Last, but not least, an important factor is the state of your health.

One thing is certain: if the franchisor is merely interested in your money and does not evaluate you under certain standard criteria geared to determine your potential to succeed, there is something wrong with the franchisor. However, before you even see a franchisor, evaluate yourself. Ask yourself questions as:

• Will your franchise be taking a considerable amount of your time away from your family? If so, how do you feel about that?
• Is your family enthused about the franchise? Will you enjoy working with them if they will be employees?
• Do you enjoy working with others?
• Do you have the background or character traits necessary to succeed in owning a business?
• Do you have the necessary capital resources? Can you make the financial sacrifices?
• Are you emotionally prepared for working long, hard hours?

Don't be afraid to ask friends and acquaintances for their opinions on your abilities along these lines. Don't rely on just one opinion; get at least several.

Franchising and the Law

Part of the flurry of new regulations and legislation that were implemented to help protect franchisees included an FTC rule, applicable before 1-Jan-1995, that required a written disclosure statement, referred to as an FTC offering circular. The FTC offering circular specified areas of information to be presented to prospective franchisees at certain points in time. This FTC rule regarding offering circulars applied to those states that had not passed franchise acts. Fifteen states passed their own franchise acts that require registration, while the FTC, which governs all the states, doesnot require registration.

Under the franchise laws currently effective, the FTC and all 50 states use the same uniform Franchise Offering Circular, although the registration states retain the right to impose stricter provisions if they so desire, including registration. In all instances, the federal and state statutes do not provide a means of deciding whether or not a franchise is of any value or even whether or not the information submitted by the franchisor is true or not. The statutes merely force the franchisor to make certain representations and reveal certain information that, if untrue, would subject the franchisor to civil and criminal lawsuits.

The bottom line is that no legislation will ever eliminate crime and no legislation will ever eliminate the naivete of some potential business owners who are obsessed with seeing only the good parts of a transaction and none of the bad. As a prospective franchisee, you must be aware of the con artists that are hard at work trying to present the best possible image of their particular opportunity and who call their business endeavors "partnerships" or "licenses."

This does not mean, however, that all partnerships or license agreements are franchises or fraudulent schemes. Because licensing and franchising have become almost synonymous, the con artists seem to consider arrangements called "partnerships" as convenient labels for circumventing the disclosure requirements of federal and state law. These type of partnerships usually offer the use of the same business name and style, but the seller is a partner whose interest is eventually purchased by the business-seeking entrepreneur. The major drawback to this type of arrangement is that the selling partner does not have the capital and does not with to reveal information about himself or herself. This would not be the case if the seller were a franchisor. In addition, before the new business-seeking entrepreneur purchases the partnership, the business is usually subject to the control of the selling "partner."

In conclusion, beware of any offered entity that supposedly gives you a going business under a trade name and has you start out as a partner and end up eventually as a sole owner, along with other individuals who also purchased a partnership interest in other areas and became owners, using the same name as yours.