1. Find the money to start your franchise
You will have to invest a substantial amount of your own money before you are in a position to borrow the rest. For example, if the cost of getting started (not including the monthly Royalty) is $100,000, you will probably be required to spend at least $50,000 of your own money before trying to borrow the rest.
The best source for a business loan may be a family member. But remember that borrowing money from your parent, grandparent or other relative is likely to put a strain on the family relationship.
A bank may be willing to make a loan particularly if you qualify for a Small Business Administration insured small business loan. However, the bank will require some kind of security like a second mortgage on your home or a co-signer in addition to yourself.
Most franchisors will try to help with financing, but no one is going to give you something for nothing or take a risk based on a poor credit rating.
Above all, do not forget that most small business fail within the first year or two. The principal reason is the lack of adequate financing. This applies to a franchise like any other kind of business. So if you do not have enough money to feel secure, forget about buying a franchise.
2. Check the Illinois Franchise Bureau
Companies offering franchises in the State of Illinois are required to register with the Franchise Bureau of the Office of the Illinois Attorney General.
These companies are also required to give prospective franchisees a Uniform Franchise Offering Circular (UFOC) at least 14 days before they are asked to sign a Franchise Agreement. The UFOC contains a substantial amount of relevant information regarding the franchise being offered, including the names and contact information for other persons who have signed Franchise Agreements with the franchisor. Call 2 or 3 at random and ask them about their experience with the franchisor. Better yet, ask if you can stop by their place of business at a convenient time to talk about the franchise. Most will be pleased to do so.
Also do your best to run down each item in the UFOC that cause you concern, and ask the franchisor to explain it or provide further information that you can review.
3. Accepting a franchise agreement
About 2 weeks after you receive the Uniform Franchise Offering Circular from the franchisor, you will be asked to sign a long and complicated document called a Franchise Agreement. Once you do so, there is no turning back. Do not let the franchisor rush you into signing the agreement until your investigation of the opportunity has been completed and you are ready to do so.
When you receive the Franchise Agreement, read and try to understand every single word and phrase. If you can afford a lawyer, have him or her read it over and advise you before you sign it or any other document given to you by the franchisor. Asking a lawyer to review something that you have already signed is a waste of money and of very little value.
Ask the franchisor for copies of any items referred to in the Franchise Agreement like an Operator’s Manual or a set of rules or policies that you will be required to follow.
For example, you may be obligated to maintain a particular type of external signs, or stay open on specified days and for a specified number of hours per day, or to buy supplies from sources approved by the franchisor. Each of these obligations will involve some cost and loss of independence to you as the owner of the franchise.