20 Franchise Questions To Ask Before Buying a Franchise
Asking the Right Franchise Questions
The franchise agreement is a lengthy legal document – oftentimes containing more than a hundred pages – that even an experienced franchise lawyer may find challenging to explain to a prospective franchisee. If you know which franchise questions to ask, and whom to ask, then the chances of buying a franchise that’s right for you go up immeasurably. The questions to ask a franchise operator are just as important as those you will ask of the parent corporation. Here are 20 franchise questions well worth asking – 12 for the franchisor and 8 for other franchisees.
Franchise Questions To Ask The Franchisor:
- How much will it realistically cost me to open for business? Franchise agreements clearly state the total franchise fee you must pay, plus whatever ongoing royalty payment is due. However, total costs – including a retail location or wholesale warehouse, vehicles, equipment, inventory, and countless other expenses – are usually expressed in a range of values, for example from $350,000 to $730,000. That’s a range as steep as the Rockies! Based upon real estate values in your area and other variables, a franchisor should be willing to narrow that estimate considerably.
- How many other franchises are in your system? A low number is not necessarily bad, nor is a high number an automatic winner. In general, you will want to invest in a company that has had its franchising system well tested, and having only a handful of locations does not accomplish that. However, getting in on the ground floor, while a high-risk proposition, can also be incredibly lucrative. Some early round franchisors may be willing to cut you a deal or even grant you master franchising rights to an entire state or national region.
- Where are your franchises located? A nationwide franchise has the advantage of huge buying power for inventory and supplies, although a regional franchise may offer a better selection of products or services based upon local demand. Something that sells well on either coast may not necessarily find a strong following in the Midwest, and vice versa.
- How many franchises have closed, and why? A franchisor is required by law to divulge the franchises that have left the system, but an honorable corporation will also be willing to explain exactly why this or that operation bit the dust.
- Have there been any lawsuits between the franchisor and franchisees? Understanding how the parent company handles disputes with franchisees should give you a pretty good idea how you might fare with them as well.
- What experience does your management team have? It is good to understand the background of upper management and their experience within the industry, keeping a special eye on how long they have been with the company. If there has been significant turnover among the corporate players, this could mean their basic franchising model is weak.
- Who is your competition, and why should I choose you over them? Naturally you will have done this homework already, but getting the franchisor’s take on other companies in the industry can be very enlightening.
- What will be my operational territory, and how am I protected within it? In order to show a profit, you must avoid undue competition from other franchisees in your system. A too small territory may not generate the kind of cash you will need to succeed.
- How does your corporate team help me select my business site? If you are opening a retail franchise, your location will be your best friend or your worst enemy. Ideally, real estate experts from the home office will tour your area with you, spending as much time as necessary to pick a spot with optimal visibility and high levels of traffic.
- How much input do I have regarding ad placement and expenditures? Most franchisors earmark part of their royalty revenue – money you pay to the parent company each month – to national, regional and sometimes even local advertising campaigns. Companies that listen to their franchisees on this topic generally enjoy greater sales success.
- What items must I purchase directly from the franchisor? In order to ensure quality standards from one franchisee to another, nearly every corporation has a list of inventory and supplies that you are required to obtain from them.
- What happens to me if the parent corporation is sold? Every business ownership group devises an exit strategy before they start the business. Knowing in advance what their plans are, franchisees can be better prepared for the changes that are likely to occur once a transition is made.
Franchise Questions To Ask Other Franchisees:
- How long did it take for you to show a profit? Even though every franchise is different based upon location, clientele, and the individual skills of the owner, this sort of information will give you a timetable against which your own expectations can be measured.
- How close were your opening costs to the total originally projected? This is a test of the amount of money you should expect to spend, no matter what the home office may have declared in its marketing materials.
- Are you satisfied with the support you have received from the franchisor? You will want to dig into this subject and note in particular any concerns that are ongoing.
- Did you find your initial (and ongoing) training sufficiently helpful? By recognizing any training shortfalls experienced by existing franchisees, you will be better prepared to fill in those gaps during your own period of instruction.
- Have you or your fellow franchisees had any disputes with the parent company? You will have asked this question of the franchisor (see #5 above), but it always pays to get the other side of the story.
- What do you see as the company’s greatest competitive advantage and disadvantage? More than likely, this avenue of exploration will lead to a very valuable discussion of the competition and how one rises above it.
- What would you change regarding the corporation’s marketing plan? Some promotional ideas floated at the corporate level are simply brilliant, while others fall flat at the retail level.
- If you had to do it all over again, would you still buy this franchise? It goes without saying that the answer to this question will speak for itself.
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