5 Solid Franchise Tips

Little Financial Advisor tax

Susan Kezios, founder and president of the American Franchisee Association, has franchise tips and information on how to prepare for ownership.

1. Negotiate. Franchisors might say they can’t change the terms of their agreements for individual franchisees, but there’s nothing in the law that precludes a franchisee from cutting a better deal. Many franchisors will attach a letter of addendum to their standard contract.

2. Get Experience. Franchise salespeople will often say that no industry experience is required, but an inexperienced buyer is an easy mark for bad franchisors. Get experience working in the industry you’re thinking of entering — say, a sandwich shop — to determine if you like it. That will also help you get a handle on issues like equipment and labor costs.

3. Ask Where Your Supplies Come From. Many franchising contracts require franchisees to purchase their supplies and equipment from the franchisor or a partner company that pays the franchisor a referral fee. Check the Franchise Disclosure Document to see how much the franchisor makes from these purchases, as inflated prices can be a big drain on profits.

4. Look for an Independent Franchisee Association. If a franchise has an independent franchisee group, it should be listed in the FDD. These can be great sources of unfiltered information. Don’t confuse these with the franchisor-funded franchisee advisory councils that many franchise systems have; these are sort of like house unions.

5. Ask How Much You Can Make. Franchise salespeople will often say they’re prohibited from giving out that information. But the FTC allows franchisors to provide performance information if there is a reasonable basis for the information and if it’s included in the FDD. Franchisors have the information; whether or not they choose to disclose it is another story.

For more questions about franchises or handling a small business contact GI Money. We invite your questions.

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