Private detective Sherlock Holmes was the brainchild of Sir Arthur Conan Doyle and had a knack for blending keen observations of a crime scene with deductions that would make any law professor beam with pride.
When you’re researching a franchise investment opportunity, you need to employ many of the same skills to search out franchises that are going to be a great fit for you personally and professionally. You also want a franchise that’s going to prove lucrative for you in the short and long term.
To pull off this feat, you’ll probably need to ask a few tough questions of yourself and of the franchise to which you’re taking a magnifying glass, perhaps in the style of the nineteenth-century protagonist mentioned above. A great place to start your investigations is with the franchise disclosure document.
The Federal Trade Commission requires franchisors to provide prospective franchisees with a franchise disclosure document at least two weeks prior to the franchisee signing any contacts, making any payments to the franchisor, or making payments to an affiliate of the franchisor.
A franchise disclosure document is a fantastic place to start your Holmesian investigation of a franchise because the franchise disclosure document furnishes you with background information on the franchisor, associated costs of going into business with the franchisor, legal obligations that might apply to you and the franchisor, and audited financials.
The last element—an audit of the franchise—is crucial for determining whether this franchising opportunity is going to be lucrative, financeable, and a passion to which you can make a sustained commitment. The franchise disclosure document will also give a sneak peek into the franchise fee and other expenses as well as past litigation or bankruptcy issues.
You’ve no doubt done a soul-searching self-evaluation by now and taken the time to assess your own financial situation in light of the fees and financial opportunities laid out in the franchise disclosure document.
One brand or franchising opportunity might be standing out at this point, but are there other questions you should be asking?
Absolutely. You want to find out how well this franchise is rated in its own category (such as baked goods) according to leading publications like Entrepreneur magazine.
You then want to do a point-by-point comparison of franchises in the subcategories on which you’ve focused to find out which is the best opportunity for you based on financial, personal, and lifestyle considerations.
That’s the easy stuff, though. What you want to do now is call the franchisor and respectfully ask a few pointed questions that will give you a clue into the dynamic between franchisees and franchisors. What kinds of questions, specifically?
Ask how conflicts are resolved between franchisors and franchisees and find out what kinds of ongoing support you might receive if you’re having difficulties down the line. A good franchise might give you passable answers, while a great franchise will make you feel like family and give no signs of an adversarial relationship between franchisors and franchisees.
Sherlock Holmes was anything but gullible. If you want to show the same investigative acumen, then make sure that you double-check item 19 on your franchise disclosure document to ensure that “off-the-record” earnings promises are corroborated by the evidence.
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