Follow These Essential Steps Before Purchasing a Franchise A step-by-step look at becoming a franchisee.
Opinions expressed by Entrepreneur contributors are their own.
If you're familiar with franchising and have chosen this path to establish yourself as a business owner, congratulations. Franchising's proven business models, training and ongoing support offers countless advantages to new entrepreneurs. However, to get there requires adherence to essential steps in the process. Though the total number may vary, depending on each franchise's awarding process, you can expect to go through certain stages of progression in order. Each step requires a candidate to conduct the proper amount of due diligence, and the stakes get higher the further along you progress. The following are the steps you can expect to encounter, in what franchising is considered the "investigative process."
Related: Risk vs. Reward, Understanding Your Tolerance
Research and review franchise concepts
Ah, the fun part! Yes, the first stage of the process involves your review of various franchise concepts. There are thousands to choose from, so be patient. Some entrepreneurs begin this stage on their own. Others might get the help of a franchise consultant or broker who will present brands based on how well the concepts match up with a candidate's goals, lifestyle and income potential. The object of this stage is to narrow down your choices to a handful of opportunities, then proceed with a process of elimination. A key piece of advice for this stage? Make sure you keep an open mind when you review certain franchises. Initially, some may not seem all that appealing, but it's the business models and your suitability to run them that matter the most. In franchising, you don't need an emotional connection to the product or service you sell.
Related: Considering franchise ownership? Get started now and take this quiz to find your personalized list of franchises that match your lifestyle, interests and budget.
The FDD
The Franchise Disclosure Document (FDD) is like a prospectus that describes the opportunity, value propositions, fees and the roles of the franchisor and franchisee alike. FDD's are mandated by the FTC and must be provided at least 14 days before any binding agreement is signed. They have 23 different sections and follow the exact same section-by-section format, regardless of the franchise concept. In their FDD, franchisors are duty bound to disclose an accurate description of their size, presence in the marketplace, their leadership team, investment required, training, support and any pending legal issues. This "open book" review of individual franchise concepts is a very important step in the process, and one in which it is highly advisable to seek professional guidance from either a franchise attorney, CPA or both. You can download this chart of all 23 sections of the FDD by following this link.
Related: 7 Things Not to Miss in the FDD
Validation
Once you've completed your review of the FDD, you have a decision to make on moving forward or choosing another concept to proceed. This stage is referred to as validation, and it's exactly what it sounds like. During the validation step, you'll have the opportunity to participate in one-on-one conversations (or in-person visits) with representatives of the brand's corporate leadership team and existing franchisees in the system. This is your opportunity to delve further into the franchise operation. This step requires some advance preparation, you'll want to enter a validation session with a list of questions and concerns about what it's like to own a franchise establishment with the brand. It's no time to be shy, this is your chance to be honest and get honest answers in return. Many franchise owners point to the validation stage as the moment they were convinced to buy.
Discovery Day
Discovery Day, sometimes called "Meet the Team" Day or "Celebration" Day is akin to a final job interview. You've made it past the phone screen, and the subsequent interviews with various team members, and now it's time for the CEO to size you up – and vice-versa. It's the final step of the evaluation process. Most often, it involves a visit to the brand's headquarters for an action-packed day full of meetings, meals, behind-the-scenes tours and serious conversations. You'll want to look – and act – your best, so treat it like a final job interview. Dress for success and be on your best behavior, because at the close of Discovery Day, the brand will make a final decision on offering you the chance to become a franchise owner.
Franchise agreement and signing day
If your Discovery Day is a success and you're offered the opportunity to become a franchisee, you'll be provided with the brand's franchise agreement. It's every bit as important as the FDD, so take your time and carefully review the agreement with a franchise attorney. Go over it section-by-section and ask questions on anything you don't understand. If you're satisfied with the agreement, it's time to sign on the dotted line.
Related: The 6 Most Important Things to Do When Starting a New Business
