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You'll find a lot of stats packed into the Franchise 500®, including unit counts, costs, royalties and financing info. But it's impossible for us to show you every detail of every franchise system, which is why we always tell you to do your research before investing. Most important to that process? Carefully reading through the company's Franchise Disclosure Document (FDD).
Here, we take a look at three key sections from the FDD. You won't find this information among our listings, but if you are interested in a particular company, you'd be wise to check out these items carefully.
Item 3 offers some of the greatest insight into whether franchisees are satisfied with the system. It reveals what the areas of conflict are and how the franchisor typically handles conflicts when they arise. But if you want to know even more (and you should), the best thing you can do is talk to current and former franchisees--who should also be listed in the FDD--to get their take.
But beware: Not all Item 19s are created equal. Some franchisors offer a comprehensive look at how all the franchises in their system are faring financially. But others offer only the average sales for their system, sales for a select few units or sales of company-owned units rather than those of franchisees. Also, Item 19 may not necessarily show the whole picture; gross sales are one thing, but profits are another.
In short, when seeking the answer to the big money question, look to Item 19 as just the first step in your research, and one to be taken with a grain (or block) of salt.
In particular, you'll want to look at the third table, which displays not only how many franchises were opened each year, but also how many were terminated, not renewed at the end of their term, reacquired by the franchisor or ceased operating for other reasons.
These numbers can be just as important to consider as the company's overall growth. If a company is losing numerous units each year--even if it's still managing positive net growth--it's time to ask questions. Find out why there's so much turnover and whether franchisees are actually experiencing long-term success with the business model or are simply being replaced faster than they leave.
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