11 Suggestions on how to pick a winner

You need to look at the franchisor to see whether in fact it runs a well organised business that is profitable and under whose system the franchisees are making money. You should consider the following:

1. Learn as much as you can about the franchise system, attend expos and investigate the website of the franchise system. Talk to suppliers of the franchisor to see that the franchisees are paying their bills and talk to each of the franchisees.

2. Request a copy of the franchisor's franchise agreement and disclosure document.

3. Request further information from the franchisor, including any financial data and forecasts the franchisor is prepared to provide, and a copy of the operations or instruction manual.

4. Consult an accountant who has franchising experience to help you understand the franchisor's financial statements, develop a business plan and assess any earnings projections. Discuss with your accountant how you intend to finance and structure the purchase of the franchise.

5. If the franchise is territory or site specific, obtain demographic information regarding the surrounding area; find out how much demand there is for the goods and services offered by the franchisee! business in the area where your business will be located. Look at the existence and proximity of competitive and complementary businesses also.

6. Speak to your bank to assess the level of funding you can expect and the security you will be required to provide. The bank can offer an unbiased view of the franchise opportunity you are considering.

7. If there is a lease, find out whether the lease term coincides with the franchise term (including options for renewal) and become familiar with the provisions of this document.

8. Find out if there are any permits or licences relevant to the franchised business and the premises. Find out if any of these will be your responsibility to obtain or maintain and whether you will be required to undertake any training or accreditation in this regard.

9. Talk to the franchisor about their future plans for the business, including any potential expansion. Does the franchisor intend to set up another store in the area which will compete with your business?

10. If you are considering purchasing an existing franchise, ask the vendor for the historical trading information and ascertain whether the vendor or franchisor are involved in any disputes with creditors, suppliers or the like.

11. Consult a franchise lawyer to review the franchise agreement and disclosure document and make sure they contain no hidden or unusual provisions which might disadvantage or mislead. Ask your lawyer to review any lease or licence agreement with respect to the premises, and to conduct any trademark and litigation searches.

By Tony Garrisson, Principal in the franchising division at Mason Sier Turnbull

This article appears courtesy of Franchising Magazine