6 Things You Need to Know Before Signing a Franchise Contract
Franchise ownership often seems like the fastest path to profitability. After all, franchise companies already have an established brand, business model, and marketing plan. What more could you ask for?
But not all franchise opportunities are created equal.
This makes it important to pay close attention to your franchise agreement – the written, legal document that outlines the terms of your franchise ownership.
Here are six things to consider before jumping on a brand’s bandwagon.
- Earning potential – No franchise can guarantee how much money you’ll make. But within its Franchise Disclosure Document (FDD), a document required by the Federal Trade Association, there’s a section called “Item 19.” Within that section, you’ll find a range of average earnings for franchisees, which — while not a guarantee of what you might earn — can help you gauge earning potential.
- Start-up and ongoing costs – In the FDD, you’ll also find an estimate of your expenses. Some of those fees are one-time only, whereas others are ongoing. Review Item 5-7 to get an idea of your total investment, and look for fees that may not be included in that total, such as marketing fees or training, to minimize any surprises.
- Proven business model – You might be considering franchise ownership to avoid starting from scratch. But, if the franchise company you choose doesn’t have an organized process in place than you may very well be playing the guinea pig. Make sure that they not only have a comprehensive plan, but a training program, too, so that you’re well equipped to run the business from Day One.
- Territory exclusivity – Location can make or break your business. If you’ve already started scouting spots, you’ve likely considered foot traffic numbers and local competition. But there’s one thing you may not have considered: Does the franchise have any other locations near there? If not, consider asking the franchise company for exclusivity so that it stays that way.
- Company culture – You’re going to be spending a lot of time at the business and working on the business. So if the company culture isn’t a fit, you’re not going to want to invest the time necessary to see it thrive. The best people to give you insight on a company’s culture? Someone from the inside. Ask the franchisor for a list of franchisees to speak with. Call as many as you can to get different perspectives and draw your own conclusions.
- Economic influence – You want to invest in a franchise whose profits aren’t tied to the ups and downs of the economy. So ask yourself: Historically, how has the franchise fared during economic lows? Look to see if the franchise company was in existence during past economic declines (such as “The Great Recession” from 2007 to 2009) and, if so, talk to actual owners and ask how they were impacted.
Within the FDD and the franchise agreement, you’ll find a lot of legalese. So make sure you understand both documents – and seek legal counsel if you don’t – before signing anything.
Want to learn more about franchise opportunities with Fast-Fix Jewelry and Watch Repairs in your area? Complete the contact form or call (800) 359-0407.