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Business Outcome :: Assessing Franchising Opportunities

Jim Denney faced a common choice: buy a franchise or start an independent company? He was an experienced business owner in Scotia, N.Y., near Albany, who had spent a year investigating a promising franchising opportunity — a business that raised sunken concrete slabs by pumping cement slurry beneath them, a technique sometimes known as mudjacking. The franchise brought many advantages: brand recognition, a 60-year history as a successful company, a proven business model and systems already in place for operations, training, equipment and safety — all of which would allow Mr. Denney to shorten the learning curve and grow faster. But he and his partner had reason to be wary. They already owned another franchise business and had grown frustrated by the lack of support they received from their franchisor. How could they be sure their new franchisor would do better? Buying a franchise demands caution — especially in the current economy. At best, franchising can ease the path to self-employment by allowing a franchisee to buy a packaged concept with a proven business model and brand recognition. At worst, it can turn the dream of business ownership into a nightmare and saddle franchisees with debt and exploitative relationships with their franchisors. The credit crunch has made it more difficult for would-be franchisees to obtain financing. On the bright side, franchisees have more leverage in bargaining — but only if they follow proper due diligence and ask the right questions. “In this current economic situation, be extra careful, because franchisors are even more hungry to sell franchises,” said Don Sniegowski, editor of Blue MauMau, a franchise news site. “Once they’ve got you in their sights, they’re under a lot of pressure to sell that franchise. It’s a buyer’s market, and if you’ve got money right now, you can pick and choose what you want. And you better be very choosy.” Here are nine questions every would-be franchisee should ask: Who Are You? Buying a franchise requires considerable due diligence — more on that below — but before analyzing the business, aspiring franchisees should scrutinize themselves. Nick Bibby, a franchise consultant in Shreveport, La., said his first advice to clients comes from an ancient Greek aphorism: “Know thyself. Decide first if you’re made for entrepreneurship.” Unfortunately, many people become enamored with the dream of business ownership and fail to ask simple questions that determine whether franchising is a good fit. “People don’t want their dreams shattered,” Mr. Bibby said. “People don’t want to know the truth.” He compares this step to marriage counseling. By asking hard questions in advance, people can minimize the danger of being blinded by passion and entering a relationship doomed to failure. What are your interests? Where can you leverage your existing skills? Are you the sort of person who likes to follow a system, or do you prefer to do things your own way? Do you want to manage people or work independently? Are you ready to pull 16-hour days, or do you need a part-time gig that allows you to keep your day job? And of course: What kind of business is right for you? Franchise opportunities run the gamut, including retail, business-to-business services, in-home businesses, child care, education, home improvement, construction, real estate, wedding planning and fast food. Should You Hire Experts? Now hear this: You need help. Franchising is full of sad stories of people who sign agreements without fully understanding the implications. Often, these people lose their savings, homes and happiness. Even experienced businesspeople need to hire experts. “A prudent businessman will start this process with a franchise dream team — a financial adviser you trust, a legal adviser you have confidence in and a business broker who’s working for you,” said Robert Purvin, chief executive of the American Association of Franchisees and Dealers. “You also need to start with a psychological adviser to identify what type of business makes sense for you.”
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