During the sales process, potential buyers typically are told to develop a pro forma business plan. Because franchisors cannot make earning claims outside of the information disclosed in the FDD, York said, they might be limited in their ability to give direct feedback on profit and loss projections. For that reason, York said, anyone looking to buy a franchise should “get a reality check” and spend time studying existing franchises.
“If you are going to buy a cupcake store, go into the cupcake store and count how many cupcakes get sold per hour,” York said. “You can’t just go in on Saturday. You have to go in on a Tuesday, and you may have to camp out there for awhile and take a lot of notes.”
Before buying a franchise, a potential owner should talk to dozens of current and former franchisees to get a sense of whether the organization is financially stable, delivers on its promises and conducts itself in an ethical manner.
“They are going to promise a lot,” York said of franchisors. “Did they deliver? Because if they delivered everything they said they would deliver in the courtship process, you’d be in great shape. It’s really important to find out if they have the capability to deliver.”