Done right, America is entering an opportune time to embrace the franchising path to small business ownership. Clearly, these are difficult times with a sinking economy, disappearing credit markets and rising unemployment.

But the woes of the economy enhance the opportunity for expansion through franchising, and prospective franchisees are a rich source of capital that is not currently available from traditional business lenders.

But what constitutes "DOING IT RIGHT?" There are many books and articles about how to select and investigate a franchise opportunity (often called ‘due diligence’), including the "AAFD Road Map to Selecting a Franchise" (FREE at our website, www.AAFD.org). Such information is important and valid, but it is only the tip of the iceberg if your goal is to drive value and to attain the AAFD’s vision of achieving Total Quality Franchising.

Identifying the right opportunity is a key element, but equally important is 1) negotiating a great deal (something some say is not possible), 2) assuring you actually get what you bargain for, and 3) protecting your future rights (i.e., making sure you have exit options should you decide to end your franchise relationship).

Here is my list of critical steps in franchise investing:

1. Know Thyself. Evaluate who you are and what kind of business is right for you. Many investors leave corporate America for a retail environment only to discover they don’t like being on their feet all day, or don’t like working with customers. Is franchising suitable for you, as opposed to being an independent business owner? They aren’t the same. A franchisee must follow a defined business system which may be quite detailed, but which ideally has already met the test of time. If you want to set your own rules, franchising is likely not for you.

2. Package and Market Yourself. Many investors fail to ‘package themselves’ so franchisors will bend over backwards to recruit them. Keep in mind that fundamentally franchisors are looking to add great operators who will drive their brand, and your ability to negotiate will depend on how valuable you appear to the company. You are likely to hear that franchisors will not negotiate their deals, but if you bring valuable talents, capital, resources or contacts, you may be surprised at what concessions you might achieve.

Fundamentally, the business must demonstrate attractive financial rewards, both for your labor and a return on your invested dollars. If the company will not provide you with the information or tools to evaluate its business model, go on to the next deal.

4. Evaluate the Franchise System. The conventional wisdom is that franchising promises a ‘proven business system,’ which includes products, services, operations, marketing, and system culture. Sadly, too often the promise of a proven system proves to be false. Moreover, all vibrant businesses evolve and must embrace change, such that it may be false to think any system is truly ‘proven.’ Prospective franchisees must carefully consider 1) if there is a ‘system’ in place, 2) whether the components of the system work as represented, and 3) whether the system is sufficiently malleable to evolve with the company’s market.

5. Verify Equity Ownership and a Fair Franchise Agreement. Very often the excitement regarding a brand or business concept can lead to an investing impulse without a sober evaluation of the nuts and bolts of the business deal. Most franchise investors are seeking to ‘buy a business,’ but the modern franchise agreement rarely conveys business ownership. This is where competent legal counsel is essential. Understand your franchise agreement. Verify that you actually are contracting for significant equity ownership, and that your legitimate interests are protected. There are good choices in today’s franchising marketplace, including more than a dozen brands that have earned the AAFD Fair Franchising Seal.

6. Franchisee Associations and Collaborative Franchise Cultures. Not surprisingly, the AAFD’s cardinal rule is to limit your search to franchise systems that embrace a collaborative culture including a strong franchise owners association. Franchisee Associations serve as the voice of franchisees, and are able to provide streetwise oversight and the negotiation of system changes. Use the AAFD’s Fair Franchising Standards (free at the AAFD Website) as a guide to evaluating a franchise system’s culture. The Federal Trade Commission amended franchise disclosure rule now requires franchisors to disclose contact information about franchisee associations.

7. Evaluate Your Rights on Termination. Most prospective franchisees are so focused on ‘getting into business’ that they fail to think about their ‘exit strategy.’ This is a grave mistake. Most businesses have an end, whether you sell the business, grow tired of it, retire, wish to go independent, suffer a health or other catastrophe, or simply your franchise rights expire. Carefully evaluate your termination rights.

Exploding a myth about franchising, franchise investors are not protected by state or federal regulations concerning franchising. The FTC requires that all franchisors provide a disclosure document concerning certain aspects of your franchise offering. The FTC doesn’t review these disclosures, and you have no personal legal recourse for FTC Rule violations! A handful of states (14) have their own franchise disclosure laws, but there are few laws that establish or protect franchisee rights.

Nevertheless, legally mandated Franchise Disclosure Documents (formerly called a UFOC) are important tools to help investors screen and investigate franchise offerings. In the hands of competent legal and financial counsel, disclosure documents provide revealing information.

Franchising can be a rewarding vehicle towards a career where you can ‘be your own boss.’ Nevertheless, investing in a franchise is likely the most important venture most investors will ever make, and decisions should be made soberly and with caution. The AAFD has published a valuable list of "Eight Things to Look For in a Franchise":

1. Select a franchising company that is primarily interested in distributing products and services to ultimate consumers. Although this rule may seem obvious, many franchising companies are more interested in selling franchises than with the quality of the products and services they are theoretically in business to sell.

2. Your franchising company should be dedicated to franchising as its primary mechanism of product and service distribution. Avoid the franchisor with a large number of company-owned stores, or who distributes its products through other channels such as supermarkets or discounts 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 expecting a proven concept and reduced risk, 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 projections, which demonstrate an attractive return on your investment. Do not believe franchisors who claim they are forbidden by law to provide earning projections and evidence of actual performance. To the contrary, all state and federal laws regulating franchising encourage franchisors to provide earnings claims.

8. Select a franchisor that supports the AAFD's Franchisee Bill of Rights and agrees to respect these rights as they apply to your franchise.