Common mistakes people make when buying a franchise
By Jenny C. McCune • Bankrate.com

Franchises generally have better success rates than a start-from-scratch business. That's because the concept's proven and a franchisee gets supports and aid from his or her franchiser.

But just because the odds are better doesn't mean that mistakes can't happen. Here are some of the common mistakes people make when buying a franchise:

• Buying an ill-fitting franchise.

It happens more often than you think. The introverted corporate refugee buys a doughnut store franchise only to find out that he hates selling to the public and hates getting up early to make the doughnuts. "People don't look at themselves and match their own personality with the type of franchise that they are considering," says Nancy Ghanem, founder and president of Franchise.com.

• Striking a bad deal with a broker.

Although there are exceptions to the rule, most franchise brokers are middlemen who can easily represent 100 franchise opportunities. Brokers won't know the franchise as well as the franchiser. The broker "may be a gifted salesman, but that's it. He'll tell you what franchise is right for you based on what he needs to sell," says Michael H. Seid, managing director of Michael H. Seid & Associates, a franchise consulting firm in West Hartford, Conn., and co-author of Franchising for Dummies.

• Falling for a fad, not a business.

Sure, smoothies were hot five years ago, but many of the smoothie-only franchise shops are now having to branch out in order to survive. "When the fad ends, you may not want to be around as the franchiser has to raise his concept to a new level," Seid says.

• Not analyzing the Uniform Franchise Offer Circular (UFOC).

A UFOC is basically the franchiser's prospectus. It outlines the company's concept, its financials and its strategy. Seid recommends hiring a lawyer that specializes in franchise law to read and interpret the document for you. "Even though it's in plain English, that's the problem. You think that you can read it yourself," Seid says. "But a lawyer will be able to read between the lines for you."

• Failing to find out about the bottom line.

Before you sign an agreement, nail down the ultimate cost of buying the franchise, says Marcia Layton Turner, author of The Unofficial Guide to Starting a Small Business. That includes upfront fees, royalties, capital needed to open the store, etc. Check with current franchisees to validate the franchiser's own estimates and figures.

• Ignoring fees.

One common mistake that would-be franchisees make: They look solely at how much it costs to buy into a franchise, not total costs.

"They'll only look at franchises with an initial investment of $5,000 or less," explains Turner. It's better to first figure out what business is best for you instead of automatically excluding franchises because of the initial investments. "There are also a lot of other costs in starting a franchise, so you shouldn't solely base your decision just on that figure," Turner says.

• Skipping the chance to meet existing franchisees.

A franchiser's current roster of franchisees can tell you a lot about the business. "They have the view from the trenches," Seid says. Also, their operation will reflect on you. If the franchisee nearest to your location gives lousy service and keeps a filthy store, that will affect how consumers think about the franchise -- including your operation.

• Foregoing a visit to the franchise headquarters.

Only do this with your final candidates -- four or five potential franchises -- notes Seid. It's important to see the franchiser on his home turf. It can tell a potential franchisee a lot about how he or she will be treated and what the operation is like -- first-class or something run out of a strip mall with a post office box address.

• Falling in love with a franchise.

Sure, you want to enjoy the business, but you need to act on hard, cold facts, not with your emotions. "It's like buying a house that you fall in love with and objectivity falls out the window," Turner says. "You have to make decisions with your head, not your heart."

• Thinking the franchise "brand" will do all the work.

A franchise with a good name doesn't guarantee success. You'll have to do your fair share of work to make your particular outlet a success, Turner says.

• Neglecting to examine the overall market.

Maybe the franchise you're investing in is going gangbusters, but how is the health of the industry in general. Is it booming? Is the market becoming oversaturated? What about specifically in your location? Maybe the franchise concept is a fine one, but it won't work in your neighborhood. "Remember that a Blimpies doesn't just compete with a Subway," Seid says. "You have to compare it to all the competition."

• Failing to read the licensing agreement's fine print.

Confirm what you'll be getting when you become a franchisee. "In some cases the territory rights may be vague," Turner says. "You may think you're buying exclusive rights and you're not. You have to make sure that you and the franchise agree with what you're getting."

• Becoming overconfident and overcommitted financially.

"People will fail to analyze their own capital situation," says Franchise.com's Ghanem. "They won't access whether or not they have enough money and will end up overcommitted."

Jenny C. McCune is a contributing editor based in Montana