Checklist for Evaluating a Franchise

The Franchise

Did your lawyer approve the franchise contract you are considering after he studied it paragraph by paragraph?

Does the franchise call upon you to take any steps which are, according to your lawyer, unwise or illegal in your county or city? What are they?

Does the franchise give you an exclusive territory for the length of the franchise, or can the franchisor sell a second or third franchise in your territory?

Is the franchisor connected in any way with any other franchise company handling similar merchandise or services?

If the answer to the last question is "yes", what is your protection against this second franchisor organization?

Under what circumstances can you terminate the franchise contract and at what cost to you, if you decide for any reason at all that you wish to cancel it?

If you sell your franchise, will you be compensated for your good will, or will you lose the good will you have built into the business?

The Franchisor

How many years has the firm offering you a franchise been in operation?

Has it a reputation for honesty and fair dealing among the local firms holding its franchise?

Has the franchisor shown you certified figures indicating exact net profits of one or more going firms which you personally checked with the franchisee(s)?

Will the firm assist you with:

A management training program?

A public relations program?

Credit?

An employee training program?

Capital?

Merchandising ideas?

Will the firm help you find a good location to carry out its stated plan of financial assistance and expansion?

Is the franchising firm adequately financed to carry out its stated plan of financial assistance and expansion?

Is the franchisor a one-man company or a corporation with experienced management in such depth that there will always be an experienced person at its head?

Exactly what can the franchisor do for you which you cannot do for yourself?

Has the franchisor investigated you carefully and successfully enough to be assured that you can operate one of their franchises at a profit both to them and to yourself?

Has the franchisor complied with the law regulating the sale of franchises?

How much equity capital must you have to purchase the franchise and operate it until your income equals your expenses? Where will you get it?

Are you prepared to give up some independence of action to secure the advantages offered by the franchise?

Do you really believe you have the innate ability, training and experience to work smoothly and profitably with the franchisor? Your employees? Your customers?

Are you ready to spend much or all of the remainder of your business life with this franchise company, offering its product or service to your public?

 Your Market

Have you made any study to determine whether the product or service which you propose to sell under franchise has a market in your territory at the prices you will have to charge?

Will the consumer population in the territory given you increase? Remain static? Decrease over the next 5 years?

Five years from now, will the product or services you are considering be in greater demand? About the same? Or in less demand?

What competition for the product or service you contemplate selling already exists in your territory? Non-franchise firms? Franchise firms?

Say that you are the type who's starting new small business. You Have given attention to the overall opportunities for success,
and have chosen the new business you wish to establish.

What technical issues will you face in establishing the business? How Much cash will you require for starting new small business?
Where can you get it? What kind of business organization does one own? Where should you locate the business? (start company tips
to follow)

The very first question you want to reply is: How much cash will I need? However, this question can't be answered until several
other questions are answered and several decisions are made.

To Determine how much cash is Required to start a business, enter all Of your potential income and all your planned expenses on a
job sheet or kind.

Though you might feel that this kind of planning is more than You have to initiate a simple small business it is useful to begin
with this approach to direction which puts figures down in black and white. You'll find exactly the exact same approach valuable
within an established small business.

First, estimate your sales volume. This will depend on the total Quantity of business in the area, the number and ability of
competitors now sharing that company, and your capability to compete for the consumer's dollar. Obtain assistance in making your
sales estimate from wholesalers, trade associations, your banker, and other business-people. A number of business and statistical
books could be useful in making sales volume estimates.

In reaching your final estimate of earnings do not be over-enthusiastic. A brand new company generally grows slowly at the start.
If you overestimate sales you're likely to invest too much in gear and first inventory, and devote yourself to thicker operating
expenses compared to your real sales volume will warrant. As you are just beginning you may have no earnings for the first couple
of months. At any rate you may expect your first few weeks to be quite low.

You must also determine what proportion of your earnings will be money And what percentage will be offered on credit. If you guess
that a certain portion of the sales will be on credit then you must figure whenever you're going to get the money for all these
earnings. 1 month? 2 months? More? Never?

Next, in our guide to beginning new small business, estimate how Much money will be paid out. Bear in mind that in starting a
business you may be purchasing gear, paying fees and licenses, which makes deposits on rent, utilities and so forth, several
months before you open the doorway. A few of those expenses are simple to estimate. In case you've opted to lease a building (more
about this later) then you know what your deposits will be and how much you'll have to pay out each month. You are probably able
to get the cost of fees, permits and utility deposits with a couple of telephone calls.

Other cost figures might take a bit more work for you. 1 way Is to obtain typical operating ratios for the kind of business in
which you're interested. Among the sources for such ratios are Dun & Bradstreet, Inc., trade associations, publishers of trade
magazines, technical accounting firms, industrial companies, and colleges and universities. The typical ratios for your type of
company multiplied by your estimated sales volume will serve as bench marks for estimating the various items of expense. But do
not rely solely on this way of estimating each cost item. Verify and change these quotes through evaluation and quotations in the
specific market place where you plan to operate.

Don't forget to pay yourself also. You may need cash to live on if You need to quit your job. If your spouse is working and can
encourage the household for some time you might not have to withdraw money from the business. The longer you can go without taking
cash out, the faster you will develop a solid cash position. Now you've estimated your cash receipts and expenditures, write down
the amount of money you will put into the company to begin. This goes online 1 at the case below. Next, add lines 1 and 2 for your
first month to find line 3. Then add up all the expenses to get line 5. Subtract line 5 from line 3 to find line 6. This cash in
the end of month then goes to line 1 for the start of the following month, etc.

Should you continue this for the entire year, very shortly you will find You've got negative amounts or a negative cash flow.
About this time you'll also realize that you ought to be working on this kind with a pencil that has a good eraser.

In this overly-simplified case, you notice that from the end of June you are minus $200 in cash. Two options can be tried - reduce
your purchases at June by $200 or start with $200 more. You may not be able to reduce costs (they will probably go up as your
company starts). That means you'll have to put in $200 more to start with. If all you've got is 4000 then the additional $200 you
will need is funding you must get from somewhere else.

Do not be fooled by this very simple illustration. Many small businesses Begin with the 200, and try to acquire the $4000 from
someplace else. Since a Major reason for failure in the early stages of a company is Under-capitalization, be very careful on your
preparation at this point. You can Almost always aim on several unexpected expenses and a few flaws in anticipated income.

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