Finding Hidden Franchise Gems

by Ed Teixeira

There are a number of franchises that provide outstanding opportunities for prospective franchisees. Many of these franchises are not well know and choose to apply more resources on their existing franchisees rather than selling lots of new ones.

I've yet to see a verifiable census that cites the number of franchisors in the United States so I'll stick with the often used stat that there are well over 2,500 franchisors.

Included in this number are some franchise companies that are under the radar. They don't garner publicity from aggressive PR efforts or highly visible franchise advertising. Many don't belong to the International Franchise Association, which can be a source of added exposure. Because of the fact that these franchisors are somewhat in the background they may not be highly visible. I've interviewed franchisors that fit this description and they acknowledge that their number one goal is to build a network of profitable and satisfied franchisees. The interviews are on the franchiseknowhow website. (As a matter of policy I refrain from endorsing specific franchise programs).  Although this objective could be considered akin to being in favor of motherhood and apple pie, these franchisors are true to their goals.

I consider these franchise opportunities to be hidden gems since they remain somewhat out of the spotlight except within their market areas.

How can prospective franchisees find these so called franchise hidden gems? How can an individual know that the hidden gems represent a good franchise opportunity? The following strategy will provides a way to find these franchises by investing some time. If the results are positive then you can continue your investigative process.

Here is an approach that's simple and productive:

1. After you've decided on the franchise industry sector and investment level that suits you go to the ad portals, franchise directories and do Internet searches to find which franchises are available.

2. Visit their websites where you can obtain additional information. For example, you could find out if the territory you desire is available. There may be some FAQ’s about the franchise program. Identify the number of locations in the system. There are some franchise candidates that may contact the franchisor directly in order to gather information first hand.

3. Obtain a copy of the Franchise Disclosure Document from the franchises that interest you based upon the above. You might have to complete a formal franchise application first. Rather than go through the entire document begin with a few sections in order to gain an overview of the franchise. If there are no red flags you can proceed with a more comprehensive evaluation of the franchise opportunity. Be sure you involve a franchise attorney in your evaluation process.

4. After you’ve received the FDD you’ll want to review the following Items:

• Item I provide an overview of the franchisor. You can learn who the franchisor is, how they came to franchise and a description of the franchise and business.
• Item 3 will list any litigation that the franchisor has had. If the franchise has been in business for at least five years and has a minimum of fifty franchisees without any litigation that’s a positive sign.
• Item 7 shows the estimated initial investment in the franchise. Carefully review this section and be sure the numbers correspond to what’s in the promotional literature and on the website.
• Item 11 lists franchisor obligations. Simply stated you’ll find out what the franchisor is contractually obligated to provide a franchisee in terms of support and services. Focus in on the training section. How long? Who does the training?
• Item 12 provides information pertaining to the franchisee territory. You’ll find out how a franchisee territory is defined plus other important information. Here is an article by franchise attorney Michael Einbinder that explains what to look for.
• Item 20 will present important information in a number of tables on new franchises added, franchise terminations and more. This article by franchise attorney Mario Herman, explains what to look for.

Although there 23 items and exhibits in the Franchise Disclosure Document and each are important certain ones can provide a preview of the franchise program. If this preliminary evaluation doesn’t turn up any red flags then you might have found a hidden gem of a franchise opportunity.

© 2011 FranchiseKnowHow, LLC

Ed Teixeira is the President of FranchiseKnowHow, LLC. He can be reached at franchiseknowhow@gmail.com