Buying a Franchise

Buying a Franchise: SmallBizeo.com Research Tool Review

• How do you make sure your are making a smart choice?
• How do you narrow down the list of franchise opportunities to one choice?
• Can you rely on the information (Sales Pitch?) given to you by the franchise companies?

• Do you have the expertise to fully evaluate the disclosure language in the Franchise Disclosure Documents (FDD) – (some are 300 pages)?
• Are there background issues with the management of the Franchise Company?
• How do you compare so many (for example) restaurant sandwich chain franchise offerings?

These are important and difficult questions to answer. Your Business Mentor Ray has purchased several franchises in the past and like you, I have struggled with getting a clear picture of just what is right or wrong with each.

Yes, you can attempt your own due diligence by reading the FDD and making calls to existing franchise owners. One major problem with calling existing franchise owners ( still this is something you must do) is that they may not tell you the real facts. I know that many franchise owners can be afraid of retribution by the franchise company if they say any thing negative about the franchise system. This is a very real problem and keep it in mind as you make your due diligence calls.

On the other hand, if you can find some of the terminated franchise owners they may be more open with you, but also they may be too bitter to give you a balanced view of their experience with a particular franchise company.

So the question is what do you do before spending tens of thousands of dollars on a franchise?

We have always recommended that you find a experienced franchise attorney and a trusted small business lawyer to help you when you get to the contract phase of your buying process. Depending on the scale of your purchase you may also need the services of an experienced CPA in analyzing the business projections and your business plan.

These experts need to be brought in toward the end of the process. This still leaves the problem of what to do earlier in decision tree when there are still too many choices to get your team of lawyers and CPA involved.

Enter Small Bizeo. This new service is all about providing you with a detailed database of information on most of the national franchise companies in the US. Beyond the detailed information (like full FDD docs on 150 franchise opportunities), they also provide a ranking and some summary information in their Get Smart reports. Each report gives a two or three page summary of the FDD. They also provide background information on the franchise company principals and the data on closure rates and litigation involving the franchise.

The founder Kal Gullapalli and his staff read each of the lengthy FDD’s and then summarize them for you in 2 or 3 pages. While I do not recommend these summaries as a substitute for your reading of the entire FDD, they can be a great time saver in trying to narrow the choices to research down to a few and then to one.

Their Get Smart reports also include an Executive Summary and a recommendation on why you should buy the franchise opportunity or stay away from it.

Small Bizeo also provides guides to certain small business segments that can be useful in both franchise evaluation and when you are considering buying an existing business. Right now they have several guides available, including; convenience stores, bar and drinking establishments, and Beer, Wine and Liquor stores.

These Guides include the following sections:

• Overview
• Key Statistics
• Macroeconomic Drivers
• Pros and Cons of the Business Type
• Current Trends in the Business Category
• Who the Major Players Are + Market Share
• The Small Bizeo Success Factors Section
• Key Tips and Facts
• Key Due Diligence Questions
• Assorted Resources and Terminology

It appears to me that Small Bizeo is managed by people who know the small business and franchising world. That they are providing one of the few services that is not influenced by the franchise companies and therefor is able to give you the franchise buyer better unbiased information.

This service has been available to the general public just starting this month August 2011. The offerings are heavily skewed toward the restaurant and sandwich types of franchises, but I see the service quickly growing to cover many other segments.

The company is currently charging a fee of $100.00 per month for access to all their data. It is view only and not down-loadable at this price. From my interview with Kal Gullapalli, it appears that the pricing model may change, but they are still very undecided of the direction to go in at this time.

Recommendation: Your Business Mentor Ray recommends Small Bizeo, if they are offering research in the franchise segment you are interested in. You can sign up for one month and then drop it if you get all that you need or you find it is not for you. Or later re-join to get what you need for any new research you are doing as you work at buying a franchise.

Your questions and comments are welcome on the review - Buying a Franchise: SmallBizeo.com Research Tool Review