What to ask before deciding to buy a franchise

Questions to ask former and current franchisees

Asking former and current franchisees questions can be a good way to find out the realities of being a franchisee in a particular franchise system. You should speak to at least 5 former franchisees and 5 current franchisees to get a range of perspectives.

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Your franchisor should give you a list of franchisee contact details when they provide the disclosure documents. You don&#;t need permission from a franchisor to speak to current or former franchisees.

Understand what it means to be a franchisee

• How long have you been a franchisee of this brand?
• Why did you become a franchisee of this brand?
• Did you have a background in business before you became a franchisee for the first time?
• How many hours do you work each week?
• What is the most important advice would you give to anyone buying any franchise, or a franchise in this brand/system?
• Has the franchisor kept promises made to you before you signed up?

Find out if current franchisees are successful

• If you could go back in time, would you buy your franchise again?
• Have you been able to pay off your initial investment? How long did this take?
• Is your cash flow positive or negative? What are the main factors affecting your cash flow?
• What are your costs of goods?
• Does the franchisor require you to pay more for supplies than you think is fair?
• Where is your franchise located? For example, is it in a shopping centre, strip shop or mobile?
• What is the rent?
• What are your staffing costs and are you able to pay yourself a wage?
• Do you feel like you can live comfortably off the money you make from the franchise?

Understand if former franchisees were successful

• Did you make a return on your investment? What were the main reasons for this?
• What happened at the end of the franchise agreement?
• If you could go back in time, would you buy your franchise again?

Find out if franchisees feel supported by the franchisor

• What is your relationship like with the franchisor?
• Do you have a choice about whether to take part in promotions or product discounting?
• Tell me about the support you receive from the franchisor. Is it what you expected?
• Do you think training was adequate to help you operate the business?
• Does the franchisor respond to your questions quickly?
• Does the franchisor encourage or facilitate communication between franchisees?
• Are you in competition with the franchisor, the franchisor&#;s other brands or other franchisees?
• Have you had an issue or a dispute with the franchisor and was it resolved to your satisfaction?
• Tell me about the marketing strategy and if you are happy with it?
• Has the franchisor made any changes to the system that has impacted your business?

Learn about the pros and cons of the franchise

• What is the best thing and worst thing when it comes to being a franchisee?
• What are your favourite and least favourite things about this franchise system?
• Have you been able to renew your agreement, or do you intend to?

Questions to ask the franchisor

Asking a franchisor questions about a franchised business will also help you to decide whether or not to buy one. You should get these answers from the franchisor in writing. You should also get a business adviser, accountant or legal adviser to check the information a franchisor gives you.

Get a general idea about the franchise business

• What is a typical day as a franchisee and am I expected to work full-time?
• How much money do I need to set up the franchise, and for the first year of operation?
• Do you have an operations manual and can I review it?
• How many times in the last 3 years has the franchisor not renewed a franchise agreement and what were the reasons for not renewing? What happened with the franchise businesses that weren&#;t renewed?
• What happens if my lease and franchise agreement don&#;t end at the same time, or one ends early?
• Can I exit the franchise agreement before the end of term and what costs are involved?
• Can the franchisor end the franchise agreement early even without the franchisee being in breach?
• In the next 10 years does the franchisor have plans to grow or sell the franchise system?

Understand if other franchisees are making money

• Across all franchised businesses, not including corporate stores, what is the highest, lowest and average gross revenue? Remember, gross revenue is different from profit. Just because there is a high gross revenue doesn&#;t mean there is also a high profit, or even any profit.
• What is the average time it takes for a franchisee to pay off their investment and start making a return? What is the shortest and the longest time across all franchised businesses?
• How many franchisees are behind in their franchise fees and/or, if applicable, rent?
• What capital expenditure is planned during the term of my franchise agreement? Is this in the disclosure document? How am I likely to recoup the expenditure having regard to where my franchised business is based?

Find out about the training and support

• Will I receive training before I open for business and ongoing training? What costs are involved?
• Does training cover the operations, such as how to use a particular machine, as well as general business skills, such as how to manage cash flow?
• What happens if I need extra training or support?
• Can you provide a typical field support schedule? What happens during visits by support staff?
• What are the key performance measures and does the franchisor help me to meet them?
• How will the franchisor help me build revenue in the first 12 months?
• What support will the franchisor provide if the business isn&#;t profitable?

Understand how marketing works

• Are franchisees expected to contribute to a common marketing fund? If so, how much will I pay in marketing fees?
• What happens if the franchisor sells or my agreement ends but there is unspent money in the common marketing fund?
• Whose salary in head office is paid from the marketing fund, and what do those staff do?
• Tell me about your marketing strategy and what it means for my franchise business.
• What further information will the franchisor provide me if I don&#;t understand the marketing statement?
• Do you consult or take on feedback from franchisees about the marketing strategy?
• Am I expected to commit time and money to local area marketing and do I need franchisor approval? 

Find out if there are supply restrictions and how this impacts your costs

• Are there specific suppliers that I must use and what happens if I find a cheaper supplier?
• What rebates or incentives does the franchisor receive from suppliers?
• What do you do to make sure the best price is secured for products supplied to me?

Find out about the culture of the franchise system and the people you have to work with

• How long does the typical franchisee stay with the franchise system?
• How many franchisees have failed in the past 3 years?
• Who founded the business? What was their motivation to start the business, and are they still involved?
• What experience do key staff have in operating or managing a franchise business?
• What is the process for handling disputes in this franchise system?

Asking questions is just one of the steps you should take before deciding to buy a franchise. You may also want to complete the free online franchising course and read more about the key steps you should take before signing a franchise agreement.

Investing in a franchise business can be profitable, but it is crucial to do your due diligence before making any commitments. Asking the franchisor the right questions can help you understand the business model, the support you&#;ll receive, and the potential risks involved. In this article, we&#;ll reveal 30 important questions to ask a franchisor before investing to ensure you make an informed decision. Let&#;s get started!

Additionally, consulting a franchise lawyer to understand the legal implications before making any commitments is highly recommended.

What Is the Franchise Discovery Process?

The franchise discovery process is crucial when learning how to buy a franchise. This step helps you learn about a franchisor&#;s business model, support system, and financial requirements. It involves a series of conversations, meetings, and research to help the prospective franchisee make an informed decision. By going through the franchise discovery process, you can understand what it takes to run the business and determine whether it aligns with your goals and values.

Why Is It Important for Potential Franchisees to Ask Questions Before Buying?

Before investing in a franchise organization, potential franchisees should ask plenty of questions to ensure they are making an informed decision. Understanding the commitment required from franchise owners and evaluating personal motivations is crucial in this process. Here are five reasons why asking questions is essential:

• Clarify the Franchise System: Asking questions can help potential franchisees understand the franchise system&#;s ins and outs, such as the operations, products, and services offered.
• Evaluate the Business Model: Questions can help evaluate whether the franchise business model aligns with the potential franchisee&#;s goals and skills.
• Assess the Financial Requirements: Franchisees must know the financial requirements, such as the initial investment, ongoing fees, and royalties, to make sure the franchise is a viable investment.
• Understand the Support System: Questions can help assess the franchisor&#;s support systems, such as ongoing training, marketing, and support.
• Identify the Risks: Asking about the risks associated with the franchise can help potential franchisees make an informed decision about the investment.

Franchise-related Questions to Ask Franchisor

Gathering information and making informed decisions are crucial to building a successful business as a franchisee. Here are key questions to ask the franchisor about their brand, operations, and support.

1. What should I know about joining your franchise system?

Essential information about expectations, obligations, and potential challenges for potential franchisees to understand.

2. What are the most common challenges franchisees face, and how do you help them overcome these challenges?

Shows franchisor&#;s support and resources for franchisee success. Allows potential franchisees to assess this level of assistance.

3. Can you share any success stories of franchisees in your system, and what traits or habits do they have in common?

It allows the franchisor to highlight successful franchisees and their traits. Potential franchisees can assess their fit based on these traits.

4. How do you ensure all franchisees maintain consistent quality and customer service standards?

Ensures brand consistency and reputation through quality and service standards. Shows franchisor values and commitment to brand reputation.

5. How do you stay up-to-date on industry trends and adapt your franchise system accordingly?

This demonstrates the franchisor&#;s adaptability and innovation in remaining competitive and allows potential franchisees to assess the franchisor&#;s long-term success.

Financial Questions to Ask Franchisor Before Buying

When considering a franchise opportunity, it&#;s important to understand the financial obligations and potential return on investment. Here are key financial questions to ask the franchisor before purchasing.

6. What is included with the initial franchise fee?

Understanding what is included in the franchise fee is important for potential franchisees to assess the value and investment needed.

7. Are there ongoing royalties or advertising fees? If so, what are the rates, and how are they calculated?

Clarifying ongoing fees and rates allows potential franchisees to assess costs and understand how their payments will be calculated.

8. How much capital should I have available to cover all startup costs, including equipment, inventory, and other expenses?

Determining required capital allows potential franchisees to assess affordability and plan for financial requirements.

9. Are there any financing options available, such as loans or payment plans, to help cover the initial franchise fee or startup costs?

Understanding financing options allows potential franchisees to assess affordability and plan for financial requirements.

10. How long does it typically take for franchisees to break even and begin making a profit, and what factors can impact this timeline?

Understanding the timeline for profitability and identifying factors affecting this timeline helps potential franchisees assess their financial plan and the feasibility of the franchise opportunity.

Questions to Ask a Franchisor About the Business Model

Understanding the franchise model and how it operates is critical to success as a franchisee. Here are key questions to ask the franchisor about the business model:

11. What makes your business model unique compared to competitors?

Ask about the franchisor&#;s unique aspects to learn how they stand out from competitors. This will help you decide if their business model suits you.

12. How do franchisees generate revenue, and what are the primary revenue streams?

Knowing a franchise&#;s primary revenue sources can inform the business&#;s profitability and revenue potential.

13. What are the typical profit margins for franchisees, and how do they compare to industry standards?

Profit margins are crucial in evaluating a franchise&#;s financial viability. Knowing typical margins helps compare to industry standards.

14. How has the business model evolved over time, and what changes are planned for the future?

Insights on a franchise&#;s evolution and future changes help assess its long-term strategy and adaptability.

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15. What kind of market research and analysis have you conducted to ensure the business model&#;s viability?

Asking about market research shows the franchisor&#;s industry expertise and trends, helping assess franchise viability.

Questions for Franchisors About the Franchise Agreement

The franchise disclosure document and franchise agreement are important documents that govern the franchisor-franchisee relationship. Here are key questions to ask the franchisor about these documents.

16. What are the franchise agreement&#;s key terms, including the agreement&#;s length and renewal options?

Assessing the franchise agreement&#;s length and renewal options can help potential franchisees plan for a long-term commitment.

17. Are there any restrictions on how I can operate the business, such as limitations on products or services offered?

Identifying operational restrictions can help potential franchisees understand the business&#;s limitations and assess the impact on performance.

18. What are the termination conditions outlined in the agreement, and what happens to the franchisee&#;s investment in the event of termination?

Understanding termination conditions and investment protection can help potential franchisees evaluate the risks involved in the franchise opportunity.

19. What kind of support can I expect to receive from the franchisor with regard to legal and financial matters related to the franchise agreement?

Knowing the level of legal and financial support provided by the franchisor can help potential franchisees evaluate their own expertise and the level of assistance they may require.

20. Are there any territorial restrictions outlined in the agreement, and how are they enforced?

Assessing territorial restrictions and their enforcement can help potential franchisees evaluate the competition and determine their potential market share.

Questions for Franchisors About Ongoing Support

A strong ongoing support system is important for franchisees to thrive. Here are key questions to ask the franchisor about the training program, ongoing support, and resources available to franchisees.

21. How much time is spent being mentored by existing franchisees?

Mentoring from current franchisees is an invaluable resource for new franchisees. This question helps potential franchisees understand the amount of time available for such mentorship.

22. What kind of training and support is available for new franchisees, and how long does it last?

To be successful, new franchisees need comprehensive training and support. This question informs potential franchisees about the available resources and duration of such training.

23. What kind of ongoing support is available to franchisees once they are up and running, and how is it provided (e.g., , , in-person)?

Ongoing support is critical for franchisees&#; long-term success. This question helps answer the available support and how it is provided.

24. Are there any ongoing fees associated with support or access to resources, and what do they cover?

Ongoing fees can be a significant expense for franchisees. This allows franchisees to understand the costs associated with ongoing support and resource access.

25. What kind of support is available to help franchisees with marketing and advertising efforts, and what kind of resources are provided for these efforts?

Effective marketing and advertising can drive business success. This information informs potential franchisees about the available support and resources for marketing and advertising efforts.

Questions to Ask a Franchisor About Sales and Marketing

As a business owner, understanding a franchise&#;s sales and marketing strategy is critical for success. Here are key questions to ask the franchisor about sales and marketing efforts.

26. What kind of marketing support is available to franchisees, and how is it funded?

Effective marketing is crucial to the success of franchisees so asking this question makes sense.

27. Is there a national marketing fund, and how are funds allocated?

National marketing funds can be a powerful tool for franchisees.

28. What kind of marketing materials are available to franchisees, and can they be customized to local markets?

Effective marketing materials can drive business success. This question is useful for understanding the available marketing materials and if they can be customized to local markets.

29. How is brand consistency maintained across different locations, and what kind of support is available to franchisees to ensure brand standards are met?

Brand consistency is vital to franchisees&#; success. Therefore, it is important to learn how the franchisor maintains brand consistency across locations and the available support for franchisees.

30. What kind of sales training is provided to franchisees, and how are sales goals set and tracked?

Effective sales training is critical to the success of franchisees. Any potential franchisee should understand the available sales training and how sales goals are set and tracked.

How Can You Impress a Franchisor?

To impress a franchisor and increase your chances of being awarded a franchise, you first need to understand how to talk and how not to talk to franchise company executives. It&#;s important to do your research, show enthusiasm for the brand, and have a solid business plan. Being prepared with questions and demonstrating your ability to follow the franchisor&#;s system can also make a positive impression. See our franchise guide for even more tips.

How Do You Negotiate With a Franchisor?

Negotiating with a franchisor can be challenging, but it&#;s important to remember that a franchise agreement is legal. Before entering into negotiations, it&#;s important to understand the terms and conditions of the agreement fully. Identifying key areas for negotiation and being willing to compromise can help both parties reach a mutually beneficial agreement.

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