Buying a franchise is an exciting and promising venture that comes with several advantages. Having access to a proven business model and benefiting from a built-in customer base are features that make franchising an extremely attractive offer. However, franchises are costly investments in terms of time, money, and effort, and making an uninformed decision can be fatal for your finances.
As a potential franchisee, it is in your best interest to be aware of the risks the franchise agreement entails and to ensure you are getting into a business that is likely to be profitable.
The way to secure your investment is by doing in-depth research on the franchise business and its proprietor. This phase, known as the franchise discovery process, is the moment in which you do your due diligence to have a deeper understanding of the franchise’s business model. This process involves having meetings and conversations with the franchise’s stakeholders. In this phase, you\’ll ask questions to the franchisor, do your online research, and ask other franchisees about their experience as part of the company so you can conclude whether you want to move forward with the deal.
In this article, we\’ll reveal 50 important questions to ask a before you invest in a franchise that will help you clear your expectations and evaluate if it is a good fit for you. Comprised of 8 sections, these questions will help you determine the franchisor’s business experience, your rights and responsibilities, and the financial implications of entering the franchise.
About the Business
These questions are directed toward the history of the franchise business and the franchisor’s experience. You will have an overall understanding of the company, whether its model has shown positive results, the franchisor’s experience, what you are expected of as a franchisee, and the relationship the franchisor has with their franchisees.
This way, you can understand the background of the company and its founders and if you identify with its core values.
What should I know about joining your franchise system?
How long has the business been franchised?
How did the business start and how long was it established before it became a franchise?
What is your experience in this industry?
How many other franchise locations are there?
What percentage of franchisees renew their franchise agreement?
What are the most common challenges franchisees face, and how do you help them overcome these challenges?
How financially strong is the franchise company?
What is the average income potential?
What is the success rate of franchisees?
How many franchise units have failed and why?
How do you vet franchises? What are your criteria for choosing them?
What are your expectations of your franchise owners?
May I speak to one of your franchises?
Who owns the intellectual property?
Have you been sued and why?
How have previous franchisee-franchisor disputes been settled?
Have you been involved in bankruptcy?
Financial
It’s key that you know the amount of investment you are going to require to start the franchise and the operating capital you need until the business breaks even. Rather than just looking at the franchise fee, these questions will help you evaluate the total expenses you need to invest to start running the business.
Get a better insight into how much profit you will generate and how long will it take to start receiving profit. Also, you are going to be aware of your ongoing financial obligations, such as royalties and advertising fees.
What is the total investment required to own a franchise?
How much is the franchise fee, and what does this include?
How much working capital will I need?
Can you give me a breakdown of all of the expenses required to start running the business?
Do you offer franchise financing?
What are the ongoing financial costs, such as royalties and advertising fees?
What is the method and frequency of payment?
How long does it typically take for franchisees to begin making a profit?
May I see the business financial projections?
How do franchisees generate revenue, and what are the primary revenue streams?
Do I have to buy products or equipment from you, or can I shop for a better deal?
What do you spend on marketing /advertising, and do I have to contribute?
Terms in the franchise agreement
You need to be aware of the terms of the contract, what you are entitled to, and for how long you will benefit from the business relationship. It’s key that you understand what you are allowed to do and your prohibitions, as well as how you can terminate the contract if desired.
What are the franchise agreement’s key terms?
How long is the franchise term? And what happens at the end of the agreement?
What are the renewal terms?
Is the franchisor willing to negotiate the terms of the franchise?
Are there any restrictions on how I can operate my business, such as limitations on products or services offered?
What are the procedures in the event my business is not performing as expected?
What are the termination conditions and what happens to my investment in the event of termination?
Can I sell my business?
Can I end the agreement early / terminate the contract
Will I own the equipment necessary to operate the business once any finance has been cleared?
Support
Having the assistance of the franchisor is one of the most attractive features of a franchise business. By asking these questions, you will know to what extent you count on the intellectual, financial, and marketing support of the franchisor, the conditions in which you will receive training, and at what cost. You will also know if there is an established communication method or a franchisee network you can resort to when needed.
What does your training program look like?
What are the location, duration, and additional costs of training?
Who must attend the training program?
Once my business has started, what ongoing support or services will you provide me with?
What point of sale and promotional literature do you supply? And do I have to pay for this?
What systems do you have in place for keeping franchisees in touch with you and each other? Do you hold regular franchisee meetings?
Is there a formal system for franchisees to make suggestions?
Is there a Franchise Advisory Committee (FAC)?
If I run into operational problems I am unable to solve, can I expect some kind of support?
What method is used to protect franchisees from poorly performing franchises?
Operations and management
As a franchisee, it’s paramount that you clearly define what will be your day-to-day within the company. These questions will give you a better picture of your level of involvement in the branch and the amount of control the franchisor will have over the business decisions, as well as what skills are expected from you.
Could you outline the likely timing from here to starting operations?
Do you provide an updated instruction and operation manual?
What will a typical day be like for me as a franchisee?
Is the business seasonal? When is the best time to start trading?
What commitment is required by the franchisee to run the franchise business successfully?
How much control do you have over the day-to-day operations of the franchisee’s business?
Will I have any control over marketing and supplier decisions?
Will I get support with employee recruitment and training?
How many employees do I need to recruit? What employees do my teamwork has to consist of?
What type of technology or software systems are used to manage the franchise system?
How do you ensure all franchisees maintain consistent quality and customer service standards?
Are there any benchmark targets in place that need to be achieved?
Do I have to commit to refurbishment or redecoration and equipment replacement?
What are the roles and responsibilities of the field staff?
Sales and marketing
Promoting the franchise as a whole and your business is an essential consideration before entering the agreement. Ask relevant questions that will help you determine the effort the business makes to position itself and establish its brand awareness, as well as the sales milestones you must meet to comply with your sales responsibilities.
What marketing support is provided?
Will there be a promotion when I launch my business, and is this included in my franchise fee?
How are sales goals set and tracked?
Are there any restrictions on the distribution or sale of a product or service?
What will my territory be and will it be protected?
What type of consumer research has the company conducted?
What sets you apart from your competitors?
What is the business’s market share?
Do you have any information about demographics, traffic count, and competitors, in my designed territory?
What competition is there in this field?
What kind of marketing materials are available to franchisees, and can they be customized to local markets?
How does the franchise use social media? Are there pages I can manage on my own?
How is brand consistency maintained across different locations, and what kind of support is available to franchisees to ensure brand standards are met?
What are the corporate goals for the brand in the next one, three, and five years?
What trends do you see in this industry that could hurt the business over the next decade, and what are you doing strategically to overcome these challenges
Do you provide franchisees with a list of approved vendors?
Site location
The territory where your business will be built will determine who your competitors are and what services you may offer. Understand how you will handle the construction of the branch and what will be the franchisor’s intervention in this matter.
Who is responsible for finding a location for the franchise?
What criteria are used to find the right location?
Do you negotiate the lease on my behalf?
Will you manage the refurbishment and fit-out of the site?
How often am I obliged to refurbish or update my franchise?
Questions for other franchisees
Doing your research with other franchisees is a great way to have an unbiased opinion of the business. Try to understand what is the relationship between the franchisor and the franchisee, the difficulties they have encountered along the way, and what are the deficiencies of the system.
Are you satisfied with the level of training and support you receive?
How does the franchisor deal with conflict?
How long did it take you to make a profit?
How many hours do you dedicate to your business?
If you had the chance, would you buy the franchise again?
Can I visit your franchise and shadow you for the day?
What would you change about the franchising system?
Starting with these questions will give you a clearer idea of the franchise business, but you can also complement your inspection by doing online research that gives you input on the business reputation. Entering forums, such as Reddit, is also a great way to read reviews and franchisee’s opinions.
How can a franchise attorney help?
Once you are serious about entering a franchise, the franchisee is required to provide you with the franchise disclosure document, which contains a detailed description of the business and the essential information for you to decide whether the investment is a feasible option.
A franchise attorney will help you review this document and write all the concerning contracts, such as lease and employment agreements, to minimize risks and ensure you comply with franchise regulations.
After reviewing the FDD and asking the concerning questions to the franchisor, our franchise lawyer will inform you of the risks and opportunities this venture carries. The lawyer will also explain the roles and responsibilities of the franchisee and the franchisor. If possible, a franchise lawyer will also help you negotiate more beneficial terms and ensure your interests are protected.
With Motiva Business Law’s franchise lawyers, you can confidently take that opportunity knowing success is all there is to come.
Call us at 630 (517) 55-29 to schedule a consultation with a franchise attorney.