True confessions: wondering what it's really like to buy a franchise? 7 entrepreneurs tell all about their experiences as franchisees

Entrepreneur, June, 2005 by April Y. Pennington

One major contention Bradley has with his franchise is unrestrained growth. With no protected area, he found three stores placed less than a mile away from his Worcester, Massachusetts, location.

Zarco: The franchisor reserves the right to place a competing unit in a location regardless of the impact that will have on existing franchisees' sales, profits and incomes. When you join a franchise, you should have an expectation of reasonable impact. Factor into your business plan how your business will be affected by a first and then a second location near you, typically taking 10 percent and 5 percent of your sales, respectively.

[LEO *] thought the business-coaching franchise he purchased in Ohio would allow him to help others run successful businesses, but he quickly became unhappy with his own. Leo felt the education provided by the franchisor "became stagnant." "They weren't creating new tools, providing new information or research to help my business," says Leo.

Before sinking your money into a franchise, Leo suggests some questions to ask franchisors: "How have you changed in the last five years? What are you doing today that is different from last month, especially with technology? What's the copyright date and publication date of your procedural manuals? If it's more than a year old, it's old."

Seid: [Also ask], "When was the last time you did consumer research? Who did it? What were the results? What have you done to improve your product?"

While Leo was well-qualified to offer business coaching, he was dismayed to discover unqualified fellow franchisees. Make sure the franchisor isn't accepting sub-par franchisees just because they have the money, says Leo. "If you have to jump through a lot of hoops and go through multiple interviews, then that franchisor has ethics about who joins the team."

Seid: Check for psychological and personality testing, serious questions about background and qualifications. And talk to other franchisees--if they're not up to your standards, get into a system where they are.

[SAMUEL *] purchased an area development agreement for a Mexican-food franchise in Kansas City, Kansas, after the franchise's CEO enticed him with stellar average unit volume numbers, which he later found to be inflated. "We had significant [verbal] misrepresentations," says Samuel, who claims the numbers the CEO gave him differed from those in the UFOC. Samuel also alleges the franchisor used aggressive sales tactics, even ignoring the company's own financial requirements so Samuel could qualify. A red flag? You bet.

Seid: Franchise salespeople are gifted. They play into your ego, drive, future and beliefs. You need an advisor. I send people to lawyers [I trust], because they'll dispassionately look at a franchise and say, "This is crap."

Zarco: When a franchisor is looking to go public and increase the value of its company, it [sometimes] engages in aggressive sales tactics by mispresenting the average unit sales volumes in order to seduce new franchisees.... [Sometimes, a franchisor] will bend the rules when it finds someone ready to put money down to open new units, even though that person may not be financially qualified.