There are basic three questions any prospective franchise owner wants to know:
1. How much does it cost?
2. How much can I make?
3. Is my area still available?
Some of the answers to these questions are found in the FDD.
To answer "How Much Does It Cost", you need to look at Items 5 - 8. This is the standard format in all FDDs.
What makes answering the question, How Much Does It Cost?, hard is the quality of disclosure in Item 8- the item that deals with restrictions on your purchases and rebates. Excessive restrictions on your source of supply can lead you to overpaying for your purchases.
Many propsective franchisees assume, without verifying, that the franchisor:
a) makes bulks purchases and receives better pricing, and;
b) passes on those rebates to the franchisees.
After all, isn't that the point of being in a franchise system - to get better pricing through group purchasing?
Well, no.
You must actually read the Item 8.
Here is Solar Universe's Item 8. It is remarkably clear.
(Here is the entire Item 8 Disclosure, How Much Does It Cost)
Solar Universe is very clear.
1. You will buy all your solar products from them, and nobody else - even if the prices or quality is better from an alternative supplier.
2. Solar Universe makes the bulk of its money, almost 75%, by selling franchisees solar products - whether or not the franchisee sells those products.
3. The definition of "solar products" is wide.
4. The is no group buying power, and rebates are likely not available to the franchisees, given this boilerplate lanugage:
"Additionally, we may negotiate pricing arrangements, including volume discounts on behalf of our franchisees with our suppliers.
Volume discounts may not be available to franchisees located in outlying markets that a particular supplier does not serve in significant volume."
In this business, you are essentially distributing and selling the products Solar Universe has bought -without regard to competive price and quality.
So, you need to be very clear on just how good Solar Universe is with their buying and prices to franchisees. Not something you can tell without more homework. This is the major input to how much does it & you must be clear on it.
For more helpful tips from expert on purchasing a franchise, please click here.
