The AAFD-road-map-to-selecting-a-franchise

Your Center for Total Quality Franchising®!

AAFD Road Map To
Selecting a Franchise

The American Association of Franchisees & Dealers

Written and produced by the Staff
Of the American Association of Franchisees & Dealers

Our thanks and appreciation to the many current and prospective franchisees
whose experiences, insights, and "learning experiences" contributed to the making of this
publication.

This publication is designed to provide accurate and authoritative information in regard to the subject matter
covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or
other professional services. If legal advice or other expert assistance is required, the services of a competent
professional person should be sought.

From a Declaration of the Principles jointly adopted by a Committee of
the American Bar Association and a Committee of Publishers.

© Copyright 2011, American Association of Franchisees & Dealers - www.AAFD.org 2

…Your Center for Total Quality Franchising®!
________________________________________________________________________________________________________
P. O. Box 10158
Palm Desert, CA 92255-1058
(619) 209-3775
Toll Free: 800-733-9858
Fax: (866) 855-1988
E-mail: Benefits@AAFD.org
Website: www.AAFD.org

INTRODUCTION Welcome! You are reading this booklet because you're interested
in buying a franchised business. Some of you already have a fair
amount of business experience and are merely seeking useful
resources for your selection process. Others of you, however,
may find yourselves newcomers to the small business world and
are eager not only for resources, but a plan to help you conduct
your selection process.

In preparing this booklet, we have attempted to provide both a
suggested "road map" for your selection and a variety of
resources we think will be helpful to you in your decision-
making. It is not intended as a comprehensive survey of all
resources available about buying and owning a franchised
business, but is intended to point you in the right direction and get
you started.

Remember, you are considering investing your hard earned
money (or borrowed capital) as well as your financial future and
dreams in a new franchised business. The time and money you
"invest" now, with in-depth research and investigation, together
with legal and financial guidance from experienced professionals,
may well save you many unpleasant and costly hours in future
litigation and/or financial ruin.

It is the desire of the AAFD to see that your plans for selecting a
franchised business are realized in such a way that you open the
door to success. We invite you to let the AAFD assist you with
its many resources.

Our best to you for a successful selection!

The Staff of the AAFD



Building Your Frequently we hear people say they want to "save money" in their
selection process by doing it themselves, or using a friend or
“Success Team” family member instead of using qualified counselors. Failure to
obtain experienced counsel, your own "success team", can be
"penny wise and pound foolish." Cutting corners in your
franchise selection process is not a very good idea.

Given the level of your potential investment, including site
acquisition, build-out, fees and commissions, make allowance for
a reasonable budget for expert advice. Typically, a budget of 2-
5% of your total investment is sufficient to afford a competent
"success team" to steer you through the selection process. The
AAFD can help lower your costs with special member discounts
and pricing from many fine professionals.

Building your success team won't guarantee your success, but our
experience shows it will save you from the "penny wise, pound
foolish" trap.

YOUR SUCCESS TEAM:

You, as an educated buyer of the franchise, are the most
important part of the "team."

An experienced franchise attorney who understands
franchise agreements and can review your offering circular and
assist you in the establishment of your business.

An experienced financial consultant or accountant who
understands franchise business and can review your offering
circular with a view to projecting the profit potential and risk of
your opportunities, and can assist you in setting up proper
financial control systems.

The AAFD for referrals to these and other experienced
professionals, through our exclusive Franchisee LegaLineSM,
FinanciaLineSM and experienced consultants. These services are
tailored to prospective and current franchisees. All AAFD
affiliated service providers offer substantial discounts to our
members.

The AAFD is your ally, always seeking to provide those services
which will assist you in being successful.



Some of you reading this booklet will be old hands on business
HEALTHY matters, and these questions will merely serve as “touch stones”
as you move through your selection process. For others of you,
WEALTHY however, you may have intuitively understood the need for these
& WISE questions, but were uncertain how to focus your exploration.
Once again, these few questions are intended to guide and prompt
you into further personal investigation, or what franchise experts
call “due diligence.”

➘ Consider a Personality Profile Assessment to assist you in
assessing your business and personal interests, skills,
strengths, and weaknesses.

➘ Do I have the requisite business skills to qualify me for
an investment of this nature?

➘ How much money do I have available to spend, and can I
afford the financial risk of buying a franchised business?

➘ How much money will it take to fully fund the purchase
of a franchised business, including start up costs and
working capital for your first year business?

➘ How can I find and qualify for financial funding?

➘ What kind of support is really provided from the
franchisor?

➘ If my franchised business fails, what are my rights and
what are the consequences for my long-term financial
health?

➘ Does the franchisor recognize and work with an
independent franchisee association that represents the
interests of the franchise owners.

➘ Does my franchisor collectively bargain with its
franchisees, and what is my franchisor’s reputation for
fairness and support for its franchise system?

➘ Has the franchisor earned the AAFD’s Fair Franchising
Seal?



1 Select a franchising company that is primarily interested in
THE AAFD’S distributing quality products and services to ultimate consumers.
Although this rule may seem obvious, many (if not most) franchising
“8 THINGS TO companies are primarily interested in selling franchises and are less
LOOK FOR IN A concerned with the quality of the products and services they are
theoretically in business to sell.
FRANCHISE” 2 Your franchising company should be dedicated to franchising as its
primary mechanism of product and service distribution. Be wary of
franchisors with a large number of company-owned stores, or who
distributes its products through other channels such as supermarkets
or discount stores.
3 Your franchising company should produce and market quality goods
and services for which there is an established market demand. The
value of franchising emanates from the value of the franchisor. Too
many prospective franchisees cannot qualify for a widely-recognized
franchise and settle for a lesser known system thinking the franchise
concept is more important than the product and trade name.
4 If you are seeking an established market, be sure to select a
franchisor with a well accepted trademark.
5 Evaluate your franchisor's business plan and marketing system. A
well-established, well-designed marketing system promises
substantial and complete training and overall franchisee support.
6 Your franchisor should have good relationships with its franchisees.
Likewise, the franchisees should have a strong franchisee
organization which has negotiating leverage with the franchising
company. A franchisor that does not permit its franchisees to
organize is a sure sign of trouble ahead. Strong franchisee
associations, on the other hand, will pave the way to successful and
cooperative franchising systems.
7 Only deal with franchising companies that provide sales and
earnings data which demonstrate an attractive return on your
meet all eight investment. Do not believe franchisors who claim they are forbidden
by law to provide earning projections and evidence of actual
selection criteria! performance. To the contrary, all state and federal laws regulating
franchising encourage franchisors to provide earnings claims to
prospective franchisees.
8 Select a franchisor that supports the AAFD's Fair Franchising
Standards and respects the Franchisee Bill of Rights of the AAFD.
© The American Association of Franchisees & Dealers 2011

ONLY SELECT A FRANCHISE THAT MEETS ALL 8 CRITERIA!



This is the “homework” of buying a franchise. Franchisors
EDUCATING want you to buy their franchise and their materials are
structured with this goal in mind. The more you learn about
YOURSELF franchising and the franchise selection process, the more
successful you will be at understanding what the franchisor is
really offering you. We highly recommend the following
sources of information about franchising and franchise
opportunities:

1. The Franchise Fraud: How to Protect Yourself Before &
After You Invest, by AAFD Chairman Robert Purvin,
AAFD member price available.

2. Buying a Franchise: The Better Business Bureau
Insider’s Guide to Success, The Better Business Bureau

3. How Much Can I Make?, by Rob Bond, Sourcebook
Learning what to ask Publications, 2009, AAFD Member Price Available
and
What to look for is Critical 4. Franchising 101, The Association of Small Business
Development Centers

5. Buying a Franchise: A Consumer Guide, published by the
U.S. Federal Trade Commission. Available at
www.ftc.gov.

Franchise Opportunity Directories:

6. Bond’s Franchise Guide, by R.E. Bond; Sourcebook
Publications, AAFD Member price available

7. The Franchise Handbook, Available by subscription or
can be purchased at your local newsstand or book store.

8. The SuperBook of Franchise Opportunities. Franchise
Times Magazine



➼ American Association of Franchisees
Info on the Web & Dealers
www.AAFD.org
➼ US Federal Trade Commission
The Internet has become a great www.ftc.gov/bcp/consumer.shtm
source of information for ➼ Cal-EASI database of franchise filings:
prospective franchisees. http://134.186.208.228/caleasi/pub/e
Literally scores of websites offer xsearch.htm
valuable information to
investors. Here are a few that The following commercial websites have
we have looked at for you. useful information, but some may sell
advertising to franchisors:

➼ www.eauth.com
➼ www.franchisebusinessreview.com
➼ www.franchisehelp.com
➼ www.fransurvey.com
➼ www.franchisetimes.com
➼ www.franchisehandbook.com
➼ www.franchiseknowhow.com
➼ www.franchise-update.com
➼ www.franchise.org
➼ www.ufocs.com


HOW THE AAFD
CAN HELP

Your Center for Total Quality Franchising®!

FRANCHISEE INFOLINE: 800-733-9858
For information on the following:

The AAFD’s Fair Franchising Standards: The AAFD has led the
way in defining fair and balanced franchising standards for a Total
Quality Franchising relationship. The AAFD standards have been
negotiated between franchisor and franchisee interests to protect you
and the success of your franchising experience.

AAFD Accredited Franchisors: Choose a franchisor that has earned
the AAFD Fair Franchising Seal, and have confidence that your
franchisor respects the AAFD’s Fair Franchising Standards, and has
earned the respect of its franchisee population.

Member Discounts: All service provider professionals offer special
discounts to AAFD members.

Franchisee LegaLineSM: AAFD member referrals to a network of
experienced franchise attorneys can provide a "Franchise Opportunity
Review."

Franchisee FinanciaLineSM: AAFD member referrals to a network of
experienced accountants, CPA's, and other financial services
professionals.

The AAFD Suppliers Network: AAFD member referrals to a network
of consultants and businesses offering virtually everything you buy in
your franchised business. The AAFD Purchasing Group is member
owned and managed to serve your needs.

Workshops & Seminars: Call the AAFD for information on events
taking place in your area, or for referrals to individuals who can make
your desired presentation.

For more information please visit us online at www.AAFD .org



OTHER SOURCES ➘ Magazine articles in Franchise Times Magazine,
Entrepreneur, Kiplinger Personal Finance, Money Guide
OF INFORMATION to Small Business and others.

➘ Talk to your local Small Business Development Center
about resources and opportunities in your area, or the
region in which you wish to establish a franchise.

➘ Classes on franchising may be available at local colleges
or adult continuing education centers.

➘ SCORE -- a network of retired business executives -- in
your area.

➘ Talk to your neighborhood franchisees ... learn what their
experiences have been.

➘ Contact the Franchisee association for your prospective
franchise, if any.

➘ Brokers and consultants specializing in franchise sales;
BUT REMEMBER, These are often sales people!

➘ Trade shows: for a sampling of what's available. But
don't take your checkbook - do not buy without
completing your investigation and careful evaluation!



Critical Questions!
NARROWING
➘ Does the franchisor you are considering recognize an
THE CHOICES Independent Franchisee Association and collectively
bargain with its franchisees?

➘ What is the prospective franchisor's reputation for
fairness and support for its franchise system?

➘ Buy a notebook for each franchise you are contacting and
always take notes.

➘ Make a permanent file for each franchisor you're
investigating and keep all the information you gather, in
your notebook. You'll accumulate a lot of information!

➘ Contact prospective franchisors to find out what their
application procedure is. Request a Uniform Franchise
Offering Circular for each franchise system of interest to
you.

➘ Do not pay any money before receiving any circular you
request: By law the franchisor should not charge any
fees until you have reviewed your offering circular for 10
days.

➘ Make a record of ALL conversations with each
franchisor: include date, time, person talked to, promises,
questions and answers.

➘ Retain this information for future discussions with your
attorney and accountant

➘ Use the AAFD's "8 Things to Look for in Selecting a
Franchise" and "The Franchisee Bill of Rights" to aid
you in your review and negotiations. (see pages 8 & 16)



EVALUATE Doing Your Due Diligence

YOUR SELECTION: ➘ Due diligence means research, research, and more
research!

➘ Due diligence means examining the offering circular
closely. All research you've previously done is invaluable
in knowing what to look for and what questions to ask.

➘ Research start up costs, suppliers; summary of all the
franchisor agrees to provide including training; site or
territorial rights; business and financial investigation of
the franchise and its owners, your competitors, etc.

➘ Make a record of ALL conversations with the franchisor
including date, time, and person talked to, promises,
questions and their answers

➘ Franchisors are required by law to disclose any litigation:
ask and research.

➘ Use your "success team," including an AAFD referral to
a LegaLine lawyer and FinanciaLine accountant for an
"Opportunity Review," i.e., to review the offering circular
with you.

➘ Give both your accountant and attorney a copy of your
notes (keep originals for your files).



CAUTIONS Critical Caution!

Do not sign any agreement without having it reviewed by your
attorney and accountant.

➘ Do not pay for any circular you request.

➘ Promises made by a franchisor may not be binding unless
included in the final franchise agreement.

➘ Record ALL conversations with each franchisor --
include date, time, person talked to, promises, questions
and their answers.

➘ The UFOC does not mean the government has reviewed
and/or approved your franchise.

➘ Do not be pressured into signing an agreement: It's in the
salesman's interest to create a sense of urgency that may
not be real. Remember: Trade shows and franchise
brokers are in business to sell franchises.

➘ Talk to lots of franchisees including those the franchisor
doesn't recommend or who have recently left the system.
Include some in similar geographic areas, some who've
been in business 3-12 months, and some who've gone
through a renewal cycle and have been in the system for
many years.

➘ The Franchisor must give names of all franchisees who
left the system in the past 3-5 years.

➘ Never underestimate the start-up costs of getting into the
franchise. Make sure you have enough funds to carry
you until the business makes a profit.

➘ Don't assume that because a franchisor is a member of the
International Franchise Association (IFA), it is a
"reputable" franchisor.


American Association of Franchisees and Dealers

The Franchisee Bill of Rights

The Franchisees of America, representing the best
of the American entrepreneurial spirit, hereby
proclaim this Franchisees’ Bill of Rights
As the minimum requirements of a fair and
equitable franchise system:
➘ The right to equity in the franchised business, including the right to meaningful market
protection.
➘ The right to engage in a trade or business, including the right to a post-termination right
to compete.
➘ The right to the franchisor’s loyalty, good faith and fair dealing, and due care in the
performance of the franchisor’s duties, and a fiduciary relationship where one has been
promised or created by conduct.
➘ The right to trademark protection.
➘ The right to full disclosure from the franchisor, including the right to earnings data
available to the franchisor which is relevant to the franchisee’s decision to enter or
remain in the franchise relationship.
➘ The right to initial and ongoing training and support.
➘ The right to competitive sourcing of inventory, product, service and supplies.
➘ The right to reasonable restraints upon the franchisor’s ability to require changes within
the franchise system.
➘ The right to marketing assistance.
➘ The right to associate with other franchisees.
➘ The right to representation and access to the franchisor.
➘ The right to local dispute resolution and protection under the laws and the courts of the
franchisee’s jurisdiction.
➘ A reasonable right to renew the franchise.
➘ The reciprocal right to terminate the franchise agreement for reasonable and just cause,
and the right not to face termination, unless for cause.

THE AMERICAN ASSOCIATION OF FRANCHISEES AND DEALERS HAS DEVELOPED THE FRANCHISEE BILL OF RIGHTS AND
WORKS TO PROMOTE AWARENESS AND ACCEPTANCE OF IT AMONG THE FRANCHISING COMMUNITY AND THE GENERAL PUBLIC.


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