Opening A Franchise? Do Your Homework!


Being your own boss can sound appealing, but do your due diligence before buying a franchise.

Online resources are plentiful, including the Federal Trade Commission's consumer guide to buying a franchise and some warnings by the American Franchisee Association. It's also essential to consult experts and entrepreneurs who are knowledgeable about franchising.

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.

"People need to be extra-cautious in deciding whether current economic conditions are favorable for starting a new franchise business and in forecasting their costs and profitability," said Craig Tregillus, franchise rule coordinator for the federal Bureau of Consumer Protection. "Because nobody knows what's going to happen."

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

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

"In real estate, it's location, location, location," said Susan Kezios, president of the American Franchisee Association, a trade association representing 16,000 independent owners of franchised businesses. "In franchising, it's the contract, the contract, the contract."

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.


On the Net:

FTC Consumer Guide to Buying a Franchise

International Franchise Association

American Franchisee Organization

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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