Part 5: Closing the Deal
Step 1: Don’t feel rushed. You should avoid any franchisor who tries to rush you into an agreement to purchase. Instead, you should take your time—this is your money on the line.
Step 2: Complete an application. Each application is different. Also, the application process will differ by franchise. Some well-known franchisors screen you very early in the process before giving you an application. Call the franchisor and ask about the process, then gather necessary information. By way of example, the Starbucks application requests the following information:
• information about your current businesses (if any)
• the geographical area where you want to run the franchise
• your education
• your current experience in the food and beverage industry
• two business references
• your career and business history, including information on positions held and duties performed
• financial information for the prior year
• amount of your assets (cash, stock, real estate, etc.)
• amount of your liabilities (loans, mortgages, other debts)
• your criminal history
• your ideas about how you would run a franchise and why you would make a good manager
Step 3: Attend a “discovery day” at the corporate office. You are contemplating on entering a long-term business relationship with this franchisor, so it is important that you meet the people behind the logo that will be supporting you. Many franchisors host “discovery days” at their headquarters, and you may be invited to attend if you pass the screening. At your discovery day, you can tour the facilities and meet with members of the management team.
• This is your opportunity to get answers to all of your questions. Write down the answers and listen closely to what management says. Make sure the answer agrees with what you have received in the FDD.
• You might not get the FDD until you attend your discovery day. This is not ideal. In that situation, don’t leave discovery day without a business card for someone you can call with questions.
• Franchisors are also judging you and trying to decide if you will make a good candidate. Ask smart questions and don’t ask a question that has already been answered. Look attentive.
Step 4: Receive an award notice. Usually within a week of the discovery day, the franchisor will notify you of their desire to formally award you a franchise. Most candidates will inform a franchisor of their purchase decision within the following two weeks.
Step 5: Review the contract. Before signing the contract, you should review it with your lawyer. Because these contracts are complicated (and long), you definitely want professional help understanding it.
• Pay attention to how disputes will be resolved with the franchisor. For example, they may require arbitration at a distant location. If you agree to arbitrate disputes, you generally can’t bring a lawsuit.
Step 6: Ask the franchisor to clarify anything unclear. The more successful franchisors tend not to negotiate their contracts. They are so confident in their business methods that they adopt a “take it or leave it approach.” Nevertheless, if you don’t understand something in the contract, you need to send them a letter asking for clarification.
• For example, if the contract contradicts what is in the FDD, then ask the franchisor which provision is binding.
Step 7: Negotiate, if possible. It’s actually a bad sign if a franchisor is willing to negotiate major provisions of its contract. A franchisor should be confident in its business plan and business methods. However, you might have wriggle room to negotiate minor provisions. Consider asking if you could change any of the following:
• the training you and your staff receive
• whether the franchisor will help with your grand opening
• fee schedules and payments
• the date you can launch
• whether you can transfer the franchise
• the definition of your territory and whether you can sell outside the territory
• amount of time you have to fix problems before the franchisor finds you in default
Step 8: Sign the franchise agreement. You may be asked to sign the franchise contract and then mail it back to the franchisor. Or you may meet and sign it in person. Either way, make sure that you get a signed copy of the agreement and keep it in a safe place.
(To be continued)
Source: https://www.wikihow.com/Buy-a-Franchise-Business
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