Here we present the list of the questions you should ask a franchisor before buying a franchise.
Franchising is a proven, low-risk business model. Here franchisor not just gives his brand to the franchisees but all his expertise to make it a success.
You enjoy certain privileges by becoming a franchisee – becoming an entrepreneur just by investing your money into someone else’s business idea. However, there are a few questions that must be asked from a franchisor so that you don’t end up regretting your decision.
Here is the list of the questions you should ask a franchisor before buying a franchise:
About the Business
1. How did the business start?
You need to know everything about the brand you are investing in. Understand everything about when it was started and what the idea behind starting it was.
2. How long was it established before it became a franchise network?
You should see how many years the business ran before getting into franchising, and how many partners were onboard initially, and then how much time it took to reach the network which it is today.
3. How long has the business been franchised?
It is very important to check that the business which you are looking to invest in is new or it has been franchising for years.
4. Who founded the franchise?
It’s important to know the person who started the business. If it’s started by an entrepreneur, it’s good to meet him. However, if he’s not available, you need to communicate with the person who is currently running the business.
5. What are their background, experience, and skillset?
You are trusting the brand completely so in order to strengthen that trust, you need to know about their background, experience, and skillset. It will also help you to make a better franchisee because when you get to know their background and experience, you will also try to enhance and improvise yourself. It would be much easier for you as a franchisee to follow the guidelines after knowing about them.
6. What are they really selling?
There is no harm in asking the brand what you actually sell. This is how you would know how to promote your business. For example, on one level, McDonald’s is selling hamburgers. But on another, it’s selling quality, service, and value delivered fast with a clean restroom.
7. How long did it take for them to reap the profits from their business?
Keep in mind that during the initial years of business, it typically takes time to break even. Depending upon the business, it could become profitable immediately or take three years or longer to make money.
8. How many hours do you dedicate to your business on a daily basis?
Ask them how much time they spend in their business on a daily basis.
9. What’s their biggest competitive threat in the marketplace?
Find out more about their competitors. Know about their USP which makes them stand out in the market.
10. What’s the biggest opportunity?
You need to know what the biggest opportunity that the company has is, and what is getting unfolded with that particular brand.
11. Are there any benchmark targets in place that need to be achieved by the franchisee?
Look if there is anything that the company wants you to achieve in a particular time period. They can either have weekly or monthly or yearly targets.
12. Ask them about their competitors, especially those operating in the local market.
You need to be sure about your competitors, especially when you are operating in the local market. You need to do a market analysis to deal with this problem.
13. What’s happened to the market over the past five years?
You should get an answer from a franchisor as to how they have evaluated the market in five years and what changes they have adapted in these years.
14. Where do you see the company five years from now?
Ask them about the future plans of the company so that you can get a sense of whether your career goals align with the company's goals.
15. Are you planning for any major strategic changes in the concept or the product in the coming years?
You need to know if the franchisor is looking to make any changes in the concept or the product in the coming years as when you invest in a business, you look for long-term association.
16. What major changes have the CEO implemented in the past three years?
Change is the dominant fact of life in every business today. With new innovations and technology coming in, businesses are continuously evolving themselves. So, it’s significant to know about the changes made in the company in recent years.
17. Will there be any financial assistance from the franchisor?
Don’t hesitate to talk on monetary angles. Ask your franchisor if he will help you in any way with financial support?
18. Is he responsible to find a location for the franchisee?
Check if the brand is helping you in finding the perfect location for your business.
19. What criteria are used to find the right location?
You need to check various pointers before deciding the right location. These include style of operations, demographics, footfall, accessibility, competition, etc.
20. Does the franchisor negotiate the lease on behalf of a franchisee?
If you are taking the site of your business on rent, you need to ask the franchisor whether they would help with the negotiation or not.
21. Will he provide support with employee recruitment and training?
You need to hire people once you enter the business. See if the recruitment is done by you locally, independently, or the principal company will help you with this.
22. Are the operations manual up to date and accessible?
There are many companies that give access to the operations manual in the initial part itself.
23. Who would manage the refurbishment of the sites, if they are needed?
Once you start the business, there will be times when you need to renovate the site. Ask your franchisor whether they will be helping with the refurbishments or they expect you to do it yourself.
24. How much do you spend on research and development?
You need to check what is the percentage of revenues of the company that goes into Research & Development. You should know if you as an individual is not investing in R&D of the product or the service you are into, then what is the principal company doing for it.
25. What support do you provide to franchisees that help them build revenues during their first six to 12 months of operation?
You should ask them what support they will provide you to get revenues in the initial year of operation.
26. What support will I receive on a day-to-day basis?
Initially, franchisors provide help to franchisees in running their operations effectively. This factor is important in order to smoothly run a business.
27. Is there somebody in the company who works in the franchise support department?
Once you start the business, you will get queries on a daily basis. Therefore, it is important for a franchisor to offer you a franchise support system available 24x7.
28. In what ways do they collect best practices and share them with franchisees in their system?
You need to check if a franchisor communicates with franchisees that have been in the business for a number of years as they will be the first to recognize the most effective best practices and the first to pass those best practices on to others.
29. What key performance indicators (KPIs) do they share with franchisees?
Understanding and identifying crucial KPIs is the first step to being able to gather data. Some of the KPIs include sales increase, gross margin, inventory turnover, and repeat customers. You need to see what all KPIs the franchisor is sharing with you.
30. In what way KPIs are shared with the franchisees?
You need to ask the franchisor as to how they will share KPIs with you.
31. How do they support underperforming franchisees?
Helping underperforming franchisees when times get tough shows your entire network what your values are. In this situation, some franchisors grant royalty relief, analyze operations, help implement a marketing plan, or even help temporarily fund overhead.
32. Are franchisees encouraged to meet regularly as part of a more extensive support network?
Ask franchisors if they organize meetings where all the franchisees get a chance to communicate with each other.
Training & Marketing
33. What does the initial training involve?
Once you get on-board with the company, you need to check the initial training given by the company. There are some companies that give on-site training for a week or a month. You need to be ready for this and give your hundred per cent as it is very important for starting your business.
34. Is there any cost involved in initial training?
You need to ask the franchisor whether the cost of the initial training is added in the franchise fees or not.
35. What are you trying to accomplish with your advertising?
You need to see which advertising agency is working for them and why did they choose to work with that particular advertising agency.
36. Will there be any control as a franchisee on the marketing decisions?
The company does marketing at a national scale so ask if it would be replicated on the local level or it would be customized for a local market.
Know about current Franchisees
37. What is the success rate of franchises?
Before signing up with any brand, check what the success rate of their present franchises is. This will give you a clear picture of where the company stands.
38. What is the most significant challenge that franchisees face?
If you know the challenge that most franchisees face, then you might face this problem as well and will be able to deal with it more patiently.
39. What percentage of franchisees renew their franchise agreements?
It is very important for you to know and assess as to how long you can carry on with this business arrangement. You need to evaluate how many franchisees have been able to do it in the past.
40. How many are the existing and prospective franchisees?
Ask a franchisor about the numbers of the existing and prospective franchisees.
41. Where are all the existing franchisees located?
Understand how the franchisor manages territories for its franchisees and what the top-performing areas are for them.
42. What is the satisfaction level of the current franchisees?
Know what the satisfaction level of the present franchisees is and what the reasons are for the dissatisfaction.
43. How are disagreements resolved?
You need to ask the franchisor about their process to handle disputes with franchisees.
44. What is your biggest franchise disaster?
Ask them what has been the biggest franchise disaster, when did it occur and what they did to prevent the re-occurrence of that franchise disaster. You should also ask the name of the franchisee that was involved in such a disaster.
45. How many franchisees have been closed so far?
Know about the number of franchisees that have been closed so far as well as the reasons for failed units.
Selling Off the Business
46. Are there any plans to sell the business in the next five years?
Ask the franchisor if he is planning to sell the business in the coming years as when you join an organization, you want to build a future in it. Hence, it’s important to know his plans.
47. Do owners plan to pass the company on to their next heirs?
It is a proven fact that if the management changes then the system changes. So, you need to look at what is the tenure of the present CEO of the company.
48. Any litigation that the company has experienced?
Ask the franchisor if they have any ongoing litigation with any franchisees or if they’ve had any litigation in the past. Know in detail what really happened.
49. Can a franchisee sell-off?
Though it is very early to ask such questions but you should always be straightforward and ask your franchisor that if you want to sell off your franchise store in the next 5-10 years, are you allowed to do that?
50. Is there an exit strategy?
The exit strategy plays a big role in deciding which franchise you should choose depending on how long are you planning to be a franchisee. It is crucial to have a strategy for exiting the franchising system.
Once you get the answers to these questions, you just have to choose the right franchise and you’re good to go!