Answers to Questions Frequently Asked
By Geoffrey Stebbins

As a company that specializes in providing guidance and advice to aspiring franchisees, World Franchise Consultants (WFC) fields many inquiries from clients and potential clients in the course of its business. What follows is a sampling of some of the many questions that we have received recently, along with their answers. Readers may obtain further information on franchising through WFC's Internet Web site: http://www.wfcnet.com. Other information about franchising is also available through The Franchise Handbook's Web site: http://www.franchise1.com.

Q. Do you need special skills to operate an automotive aftermarket franchise?

J.L.- Toledo, OH.

A. Most franchise companies provide training to their future franchisees to help them get started to operate their business. Very few franchisors in the automotive aftermarket industry require any previous experience. Many franchisors even state that they would prefer to have the franchise owner managing and marketing the business rather than acting as a mechanic or technician inside the shop. In general, a background in a specific industry can help a person, but it is certainly not a requirement.

Q. Does the franchisor help you hire employees?

M.L.- Detroit, MI.

A. Most franchisors will not hire the franchisee's employees, but many will give you guidelines on how to hire them, and some will even assist you in the hiring process, especially of your key personnel. It is best to check in the franchisor's franchise agreement, which you must ask for if you're seriously considering that franchise.

Q. I have been looking at a new franchise and suddenly the franchisor told me there is a franchise for resale available. He said I can't look at the financial information on the franchise, but the owner is getting out because of health reasons, what should I do?

D.K.- Chicago, IL.

A. If you have first evaluated yourself and, as a result, decided on the industry which is most suited to you, and then you have evaluated the various franchises within that industry and have come up with the franchise which makes most sense for you, then there are distinct advantages and some disadvantages in acquiring an existing operation.

If you think that an existing operation is more advantageous for you, then you must certainly demand to see the financial figures of the business you are considering purchasing. You have every right to see the figures for at least the past three years and have your accountant check them out and verify their validity. If you are denied access to such figures, forget buying that business, and if you're still convinced you wish to buy an existing operation, go to the next franchise company on your list that is next in line for your suitability and ask what it might have available in the area of resales.

If on the other hand, you deem a start-up situation is in your better interest, then don't be pressured by the franchisor into the resale, but tell him you're only interested in a new location. Likewise, if he has none available, then go to number-two franchisor on your list of suitability.

Q. I attended a seminar recently given by a cabinet refacing and wood finishing franchise company. The franchise sales director giving the presentation emphasized very strongly that his franchise was a home-based business, which could be operated out of my house. I personally feel I need to get out of the house every morning to get me motivated. Must I run this business out of my house?

R.N.- Canton, MI.

A. I very much doubt that the franchise company would prohibit you from running the franchise out of a small office. You must, however, check this in the franchise agreement. If there is a provision that requires you to operate out of your home and you don't feel this is in your best interest, then ask the franchise company to add an addendum that would permit you to do this. If the franchisor is not willing to make this change, you might then wish to look at a different franchise. Most franchises offering home-based business opportunities stress the advantages of being home-based for two reasons: First, there is a noticeable trend and strong desire by many people to run their businesses out of their home, and franchisors wish to capitalize on this trend; and, second, franchisors want to emphasize the low operational cost associated with home-based businesses.

Q. I have $20,000 to invest in an $80,000 franchise; can't SBA finance the rest?

K.M.- Orange, CA.

A. In my experience, there's no hard and fast rules that can be applied to SBA across the country. The SBA is usually a guarantee that is given to the bank that makes the loan, and different banks have different criteria for guaranteed loans. For instance, in the brochure printed up by the SBA on their low-doc program, it states that "all loans are to be adequately secured, but loans generally are not declined where inadequate collateral is the only unfavorable factor." However, most banks that I've come across will decline loans where inadequate collateral is the only unfavorable factor. Whether SBA will finance your loan will likely be dependent on four factors:

• the amount of collateral you may or may not have
• your ability to repay the loan, which may be related to other sources of income and/or the business plan you submit to the bank
• the plans for the use of the loan proceeds, which can affect SBA's decision and often can be dependent upon how you package your request for the loan
• your credit rating, which will also be an important criteria for any loan.

In general, the banks look more favorably on loan applications where there is a cash infusion into the business of at least 35% of the owner's own money. The franchisor of the particular franchise you're looking at can probably give you some help on this question.

Q. I saw your article in The Franchise Handbook last month, what types of services does a franchise consultant provide?

R.Y.- Troy, MI.

A. Different franchise consultants may place emphasis on different types of services they might provide. The main differences between consultants will be whether they direct their consulting towards the franchisee or more towards the franchisor. Another big difference between consultants is whether they provide services or are really in the business of selling franchises. Some consultants have elements of all of these things. It would be prudent for anyone wishing to engage the service of a consultant to discuss their needs in order to make sure the consultant can fulfill those needs. Don't forget to check fees before engaging any service.

Q. Who is in charge of site selection?

M.M.- Jackson, MS.

A. Most franchisors will give you some assistance in site selection. Some franchisors even do the complete site selection for you, although such franchisors may mandate that you are required to accept the site that they come up with. Other franchisors may give you the option of being involved and helping to choose the location under their direction. Those franchisors who do not do the site selection, may offer some assistance to franchisees to help them find the best available site. Often, they retain approval rights over any site selected. There are some franchisors that have nothing to do with site location at all or just indicate in which general area the location should be. Potential franchisees must determine what role they need the franchisor to play in site selection. People who need the support and the site selection expertise of the franchisor should seek out a franchisor qualified to provide those services.