Want to invest in a franchise business? But you don’t know where to start? After all, parting with a large sum of money, while in the dark, sounds risky, right? And surely, there’s so much to know.
So, if you want to get detailed information on buying a franchise, in order to make the right decision, read on. We’ve conjured up a comprehensive guide on the most important franchising questions to ask before you commit yourself to entering into a legal franchise partnership agreement. Here are the 40 top priority questions to ask before buying a franchise:
Learn about the business itself
#1. What’s the company’s history?
Learning about the company’s initial setup and its motivation behind developing a franchise model will help you get an insight about the brand as a whole and its future plans. After all, a bright future often depends on a glorious past.
#2. How long has the company been operating as a franchise business?
Again, this information will reassure you about how stable the company and its franchise system are. It is much less risky to invest into a model that has been proven to work, right? Let’s not forget that new franchising companies often fail within the first year of operations.
#3. Is the company financially sound?
Sean Kelly, the founder of “Unhappy Franchisees” sums it up: “The benefit of a franchise is really to buy something that’s been proven over a period of time. Hopefully, something that’s been proven over different economic climates. So it’s done well in good times and in bad.” So, learning about how strong financially is the business, will help you understand its ability to withstand potential economic hardship.
#4. What type of customers is the company targeting?
Whether we’re talking about a multi-service business or a product manufacturing company, you need to know what type of clientele the business is aimed at. As a franchisee, you’ll be also expected to get to know the profile of your typical customer.
#5. Is the company’s mission clear?
It’s not hard to assess whether the company’s mission, values and objectives match what the business claims it’s all about. You only need to ask about their positive customer review rate to figure out whether the business practices and standards are consistent with the company’s principles.
#6. What sets the business apart from the competition?
Read between the lines of what you hear, whether the answer has a focus on product quality, value for money services or innovation. A genuinely successful business will not disparage its competitors but show respect towards its rivals in the same industry field. This means that the company is not afraid to be “judged” on its own merits.
#7. Who owns the intellectual property rights?
This question is important in terms of your rights to use the company’s intellectual property (trademark, brand logos, etc.). So, ask about the type of powers you get along with the granted licence, in terms of the parent company’s brand usage policy and other intellectual property guidelines.
#8. What’s the earning potential for the new franchisee?
You need to know everything about the returns on your investment and the potential turnover that you can expect. Enquire about consumer demand, prices, ongoing expenses, locations and the competition you may get from other franchisees, as well as from other similar businesses.
#9. What’s the company’s strategy for the future?
Only a business with a clear vision about its future development can be expected to meet its goals and achieve its objectives. So, you can ask if the business have plans to expand to other locations, widen its service/product portfolio or employ more support staff, for instance.
Questions to ask about the franchise agreement
#10. What’s the length of the franchise contract (the term)?
The answer can give you a sense of security that you’ll be buying into a guaranteed business for a fixed period of time (5 years, 10 years and so on). You should also ask the franchisor to clarify any franchise renewal clauses, if present in the agreement, as they are often ambiguously written.
#11. How much is the initial investment and what does it cover?
Don’t be afraid to ask any money-related questions. Request specific details about what exactly the initial fee includes. Does it cover training, marketing materials, assistance with getting equipped or with renting a suitable outlet? Enquire if your investment will secure you with an access to job leads or to the company’s potential client database.
#12. What will be your area of operations and can you choose it yourself?
Ask if you’ll have any control over picking the area of your business operations. If not, you can enquire about the company’s policy on the maximum number of franchisees that can work and run their business in the same location.
#13. Is your location protected, in terms of competition from other franchisees?
Although related to the question above, this one focuses on the legal provisions for your protection against competition from other franchisees. These should be set out clearly in the franchise agreement to avoid any ambiguities and future disputes.
#14. What are the non-compete clauses in the agreement?
You need to know about any restraints of trade clauses that will apply during and outside the term of the franchise agreement. In other words, you have to have a clear understanding about your obligation not to compete with the franchisor, while in partnership, as well as during a specified period, once the contract has expired.
#15. How often do I have to upgrade the premises and my equipment?
This is a key question because it is related to future expenses that you must know about from the very start. Imagine, you’re just about to enjoy your first year of making a profit and suddenly, you are prompted to invest in a major refurbishment of your store due to the new updated standards, initiated by the franchisor.
#16. What are the consequences if my business doesn’t succeed?
There’s nothing worse than being unprepared when it comes to losing money and saying ‘Goodbye’ to your dream of owning a business. It’s rare but in some cases, you may be able to get a partial refund of your investment fee if the agreement stipulates it and you’re leaving the partnership after a short period of time.
#17. How can I terminate our partnership?
Again, if you are uncertain about your rights and you don’t understand what the contract says on this matter, ask for clear guidance on how you can terminate the franchise agreement. You should be aware of the consequences and the costs.
#18. Can I sell my franchise business?
Another important issue is whether you can part with the franchisor in a way that is favourable to both parties. You may want to pass on the business to your brother or son, or sell it to a stranger. Either way, ask the franchisor about all your options if you want to leave the partnership for good.
Enquire about the business operations
#19. Does the company update its operational manual and how often?
This will concern you with respect to how often you can expect to undergo further training or change the ways of your business operations. This is especially valid if the franchisor is going to make significant changes to processes and procedures. Beware that this may also incur unexpected costs for you.
#20. Do I have any say over which supplier to order materials from?
Most franchise companies will have a clear policy on where their franchise partners should get any supplies and equipment from. For instance, in the case of manufacturing a product, individual franchise owners from the same network must produce goods of the same quality and standard. Also, the franchisor usually signs agreements with specific suppliers, in order to get discounted goods and materials. These perks are passed onto the franchisees, too.
#21. What about marketing materials and the process of their distribution?
Ask the franchisor about their advertising efforts, which will be applied independently of your responsibilities to promote the brand (and protect its image). Enquire about their marketing strategy and request details about any promotional campaigns they would organise on a regular basis.
#22. Do you provide job leads and how do I access them?
Many franchising businesses nowadays outsource key services and systems to improve the efficiency of their operations. They may have a central enquiry phone line or a neatly organised customer service/call centre, where job leads are processed and distributed within the franchise network. This way, the franchisees can get ready clients, without much input on their part.
#23. Is there a minimum monthly target I need to meet, regarding orders?
Of course, the franchisor will expect a certain level of proactiveness from you and willingness to grow your business. So, it’s important to ask what happens if you fail to meet the minimum performance benchmarks that the franchisor may have set out.
#24. On that note, can you give me an estimate of how much I can earn?
The franchisor will be keen to provide you with an example of what you can earn as a franchisee. But don’t just take their word for it. Ask what the figures mean and if all expenditures are included in the cash-flow projection. Also, you can enquire if the example is a theoretical one or the figures are taken from a real franchisee who is not necessarily a top performer. After all, you need a realistic estimate and an achievable example that you can work towards.
Ask questions about the available franchise support
#25. Do you offer an initial training and subsequent training opportunities?
This may include specific service or product-related training, sales and customer service courses, as well as mid-partnership upgrading of your skills and expertise. The initial training will also most definitely involve a comprehensive introduction to all processes and practices of the business, usually set out in the company’s operational manual.
#26. What about assistance with recruiting and training staff ?
Depending on the type of business you are investing into, you may need help with selecting and training your own employees. Big brands put in place effective training programmes for staff, examination processes and subsequent quality control supervision. Only then, the same quality of standard across the network can be achieved.
#27. What other ongoing support do you provide and who is responsible for this?
This is another key franchising question to ask. It may relate to financial assistance (if you need to update your equipment later on, for instance). Or the franchisor may offer support with additional certification and insurance, if you decide to expand your service or product list. Enquire about the person you need to contact should you need extra assistance.
#28. Do you also provide any marketing support?
Without adequate marketing support, you may find the franchise experience “lonely”and a bit of a struggle. So, request detailed information on what marketing materials and brand exposure merchandise you’ll get, in order to facilitate your operations and spread the good word about the business.
#29. How often do you communicate with the franchisees?
The franchisor should be communicating updates, changes and news with the franchisees on a regular basis. It’s important to know, whether such communications are initiated by the franchisor or you’ll be requested to subscribe to newsletters, for example, in order to get updated and feel fully informed.
#30. Is there a main contact person who I can get in touch with?
Again, in order to feel a valued member of the franchise network, you should be given the possibility to reach out freely to your parent-company. So, ask about what channels of communication you can use to get in touch with the franchisor when you need to. Get the details of the right person you can contact.
#31. How do franchisees from the same network connect with each other?
Other franchisees are not necessarily always your competitors, even if you operate in the same location. They can be your partners, too. Imagine, you need to borrow a piece of equipment for a day or two, and a fellow franchisee is willing to step in and help. Or you and another franchisee run a business in the same industry sector and have formed an unspoken and mutually beneficial partnership, when it comes to cross-selling individual specialised services. So, enquire about the contact means that the franchisees can use to communicate with each other.
#32. Do you assist franchise owners who underperform and how?
Some franchisees may be struggling to turn a profit due to factors that are outside of their control (location, competition, undeveloped client base, and insufficient advertising efforts). So, do ask your franchisor if they offer assistance to franchise owners who face such obstacles and challenges.
Request details about the franchise recruitment process
#33. What criteria do you use to choose your franchisees?
This question is usually answered within the initial franchise offer. Naturally, the franchisor will set out their minimum requirements before a franchisee can join the network. These may include experience, qualifications, a minimum level of equipment, a vehicle, eligibility to work in the country, language skills, clean criminal record, etc. But what’s important to ask is if the franchisor is willing to assist you in meeting some of their requirements (say, you lack a piece of equipment or means of transport).
#34. How strong is the consumer demand for your product/services?
You will want to have a clear picture of the consumer demand for the product or services you’re going to offer before you enter into a fixed-term agreement. So, get an insight on this and ask specifically about the area you’ll be operating in. Don’t forget that consumer demand is closely related to your potential customers’ profile, with respect to age, gender, income and so on.
#35. Are there any ongoing fees or additional start-up expenses?
This is another money-related franchising question to ask. Most franchising opportunities do not entail any hidden start-up costs. You should be able to learn what the initial fee covers from the very start. But it’s a different matter when it comes to the ongoing fees you may need to pay each months. So, ask whether you’ll be parting regularly with some money per job lead, on a commision base, or you’ll be paying a royalty fee, which will be a percentage of your gross sales.
#36. How long before I can expect my business to make a profit?
This one will get you an answer that is likely to be based on predictions, estimates, guesstimates and pure guesswork. Still, do not forget to ask this question, regardless of how reliable the information you receive might be. Request to see the figures of an established franchise owner who has a similar profile to yours, in terms of location, area of expertise and potential client base.
Questions to ask about other franchisees
#37. How many franchisees do you work with and what’s their success rate?
The answer to this question will give you a good picture of the overall success of the brand. However, beware of the following – the fact that a company keeps recruiting doesn’t always mean that it’s growing and expanding. There might be an issue with a high turnover of franchisees. So, do your homework and request information about their success rate.
#38. Can I get an insight about the experience of current franchisees before I join you?
Is the franchisor willing to connect you with current franchisees who can share their experience working with the company? A profitable and successful business will have nothing to hide from you. On the contrary, this will be the franchisor’s key selling point if they are genuinely seeking to develop their business.
#39. How many hours a week on average does the franchisee spend working on their business?
You can easily get this information directly from the franchisees if you’ve been given the opportunity to speak to them. Still, the franchisor should have an idea of what it takes to manage a business and how much time a franchisee should invest per week, in order to make things work and succeed.
#40.Why do you think some franchise owners fail to succeed?
A wise question to ask because it will enlighten you about the franchisor’s ability to keep a finger on the pulse of their business operations as a whole. If the company fails to identify the reasons for why some of their franchisees fail, you may need to think twice before entering into a partnership with this business.