Monday, Feb. 16, 2009

Do your homework before buying a franchise

Being your own boss can sound appealing, but do your due diligence before buying a franchise. Here are some basic precautions to keep in mind:

1. INVEST IN WHAT YOU KNOW: Try to pick a business where you have some kind of familiarity or related skills. It could be dangerous to go into an industry you know nothing about. Opening a small pizza takeout franchise may seem like a good idea, but if you’ve never worked in a pizza joint or the restaurant industry, you could be in for a rude awakening.

2. REMEMBER THE RECESSION: The fast food business tends to prosper in recessions, and so does shoe repair. But will your franchise? Even if a business category has a history of faring well in economic slumps, make sure you have enough to sustain yourself under some of the bleaker scenarios.

3. CHECK THE FRANCHISERS’ CREDENTIALS: Talk to franchisees involved with the same organization and ask them about the pros and cons, and about the treatment and support they get from the franchiser. And look into the company’s background.

4. SCRUTINIZE THE CONTRACT: Get a copy of the contract from the franchiser well in advance of the signing and review it carefully. It includes information on the franchiser, its bankruptcy and litigation history, fees, investment requirements and other details that can limit your ability to be profitable.

5. KNOW THE LICENSING REQUIREMENTS: Make sure you’re aware of the licensing requirements in your state.

6. HIRE AN ATTORNEY: Give thought to consulting an attorney who is experienced in franchise law, and ideally one who also is a franchisee attorney. The American Franchisee Association lists about two dozen on its Web site.

LEARN MORE

FTC Consumer Guide to Buying a Franchise: ftc.gov/bcp/edu/pubs/consumer/invest/inv05.shtm

International Franchise Association: franchise.org

American Franchisee Organization: www.franchisee.org

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