There are so many factors for consideration when evaluating various franchise offerings. Most people, (even experienced business executives) rarely have the knowledge necessary to avoid the pitfalls that can lead to making a poor decision. A poor decision can mean the difference between your success or failure. The problem is “You don’t know what you don’t know!”.
At American Franchise Consultants, we have the industry experience to know how to evaluate different franchise companies, their Franchise Disclosure Document (FDD), their viability for long-term growth, the level of support they offer their franchisees, and many other factors that allow our clients to make sound, educated decisions.
Let’s start with what you do know. You know you need the answers to the following questions:
Now let’s look at what you don’t know. Let us give you one example.
Two franchisors offer very similar, competing franchise concepts.
- Franchisor #1 has sold 250 territories and has a coast-to-coast footprint of franchisees.
- Franchisor #2 has sold 40 territories, primarily in the mid-west.
You are located in the southeast and are interested purchasing the franchised business concept from either Franchisor #1 or Franchisor #2. You probably are more interested and feel more comfortable initially with Franchisor #1 simply because they have sold more territories, coast-to-coast.
Without American Franchise Consultants you wouldn’t know that Franchisor #2 is your better choice. Why? In this case Franchisor #2’s more centralized footprint has made their company easier to manage, with lower operating costs and higher profits for the franchisor. This means they are more financially stable than Franchisor #1 and are more likely able to provide the long-term support for you, their franchisee.
We knew to review and analyze each Franchise’s financial statements provided in the Franchise Disclosure Document (FDD). As we work with you through the evaluation and decision-making process, we share this valuable information with you which will help you make your educated decision. There are many, many other factors you would also want to consider when evaluating companies that are of interest to you. With American Franchise Consultants as your guide, you can have more confidence in your decision-making process.
This is only one of many of examples of “what you don’t know”. American Franchise Consultants does know. Several other examples are:
- Franchise Disclosure Document (FDD) – Item 11, “Franchisor’s Assistance, Advertising, Computer Systems, and Training”.
In comparison to Franchisor #1, Franchisor #2 has a more robust training program and more post-opening support of their franchisees. -
Franchise Disclosure Document (FDD) – Item 19, “Financial Performance Representations”.
In comparison to Franchisor #1, Franchisor #2 has potential for greater profitability.
Under the Federal Trade Commission (FTC) Franchise Rule there are 23 required and specifically formatted areas of disclosure, along with a written receipt. Two of these items were referenced in the examples above. These 23 areas, which are called “Items” are:
- The Franchisor and any Parents, Predecessors, and Affiliates
- Business Experience
- Litigation
- Bankruptcy
- Initial Fees
- Other Fees
- Estimated Initial Investment
- Restrictions on Sources of Products and Services
- Franchisee’s Obligations
- Financing
- Franchisor’s Assistance, Advertising, Computer Systems, and Training
- Territory
- Trademarks
- Patents, Copyrights, and Proprietary Information
- Obligation to Participate in the Actual Operation of the Franchise Business
- Restrictions on What the Franchisee May Sell
- Renewal, Termination, Transfer, and Dispute Resolution
- Public Figures
- Financial Performance Representations
- Outlets and Franchisee Information
- Financial Statements
- Contracts
- Receipts
The FTC Franchise Rule makes it easier when evaluating different business franchises on an “Apples to Apples” basis. Still, it can be a daunting task for the layperson. AFC works with you to turn potentially complicated evaluations into a much easier process. Again, allowing you to make sound, educated decisions.
We, at American Franchise Consultants, will help you with answers to the questions that you don’t know to ask. Call us today at 423-413-6258.
