Another oldie but goodie article for franchisees from Inc in 2000, abbreviated below:
1. Not reading, understanding or asking questions about the disclosure document. As you read the document [UFOC], keep notes on those areas that are confusing and unclear. While you may want your attorney’s opinion, give the franchisor the benefit of the doubt and first ask its representatives to explain their understanding. Then check the remainder of your concerns with your attorney….
One of the most common problems between new franchisees and the franchisor is a misunderstanding as to responsibilities. Among other things, this can cause problems in meeting the schedule for Grand Opening dates.
2. Not understanding or having an inaccurate or incomplete interpretation of the franchise agreement and other legal documents to be signed. You and your attorney should carefully review the franchise agreement, the lease or real estate agreements, and any other contracts. First, make a list of questions to go over with your attorney, then present your concerns to the franchisor. Get the franchisor’s clarifications in writing.
3. Not seeking sound legal advice. Locate and retain an attorney, preferably one experienced in franchising.
4. Not verifying oral representations of the franchisor. You may want to tape-record all your meetings with the franchisor. If you ask permission to do so, it is generally admissible in court if the need arises later. It also lets the company representatives know that you are tracking their words…Send a registered letter to the franchisor and a copy to the representatives memorializing your notes with a request for their response to any items you want clarified.
5. Not contacting enough current franchisees. …find out whether the franchisor has introduced you to specific franchisees compensated for their help to solicit new franchisees. Ask them….has the franchisor held up its end of the obligations regarding ongoing support assistance and training?
6. Not confirming the reasons for failed franchises. Locate some franchise outlets that are closed, sold, or have changed ownership to company-owned, and find out the reasons for their change of status. Contact the original owners and get their stories.
7. Not having enough working capital. Make sure you have enough capital to cover every cost associated with the business including all pre-opening costs, enough set aside for your family budget, and enough operating cash for the business to make it through the break-even point.
8. Not recognizing the need for financing, not knowing how to make a proper loan request and not developing a true and accurate financial statement. If business accounting is not your forte, solicit the help of a good accountant.
9. Not meeting the franchisor’s key management personnel at their headquarters and the field representative assigned to your territory. Meet the other franchisor personnel and verify the information provided by the sales representative… also meet the field representative or district supervisor that will be working with you.
10. Not analyzing your market in advance. it is still your responsibility to decide for yourself whether a particular location is desirable and promising…Do the competitors have any weaknesses that you will be able to avoid in your business to capture more market? Are the competitors so strong that their market saturation may be hard for you to penetrate? If a local competitor dominates the market, entering it may turn into a competitive struggle that will increase your working capital requirement…find out the amount of advertising and promotional dollars intended to help…Although helpful, it is not a good idea to rely totally on your franchisor for your market research…you may want your agreement to include a right of first refusal to buy additional franchised outlets in the subject territory before the franchisor considers other prospective franchisees.