Important Questions to ask Before Buying a Franchise
You’ve decided to look at business ownership through franchising. With the help of a franchise consultant, or perhaps on your own, you’ve decided on two or three franchises that are a good “fit” for you. Now what??
I suggest you approach this process as an educational process and not an investing or buying process. In other words, you want to gather the facts or as Sergeant Joe Friday of the 1950’s police show and 1987 movie “Dragnet” would say, “just the facts ma’am.”
The two primary steps in this educational process are talking to the franchisor, the people who run the franchise system, and the franchisees, the people who are doing today what you’ll be doing tomorrow. Both are very important and need to be done diligently but I believe talking to the franchisees is where you will gather facts that are most relevant to your decision. With that in mind, I am going to walk you through talking to franchisees or, as we call it, the validation process.
At the end of this article is a list of questions to ask franchisees. Please note these are not meant to be all-inclusive. They will give you a good start, but include your own questions, some of which you will likely develop as you go through the process. Keep good, detailed notes. Be sure you are asking the same or very similar questions to each franchisee particularly with each different franchise so you can compare “apples to apples.”
Note that you can talk to any franchisees that you want. You will receive the Franchise Disclosure Document (FDD) from the franchisor. Franchisees who were in business when the FDD was published are listed in the FDD.
Working Through the Franchise Validation Process
Demographics: Talk to franchisees who are in similar demographics to where you would open your business. If you are planning on opening in a suburb of Indianapolis, for example, talking to a franchisee in downtown New York City probably won’t provide you with comparative information due to population density among other things. However, talking to someone in a suburb of Columbus, OH will likely give you a good idea of what to expect in your location.
Franchisee success: You will certainly want to reach out to successful franchisees to find out why they are succeeding. Then ask yourself, “Am I willing to do what these people have done and work as hard as they have?” Also, try to access if you are similar in character, as much as you can determine in a call, as they are.
Talking to franchisees who are struggling is valuable in finding out why they are struggling. Are they not following the franchise system, is it a demographic issue, is the marketing program not working, etc.?
Try to talk to franchisees who are out of business and find out what happened and why.
Age of business: Businesses are very much like children as they age. Just like a kid goes through different phases of aging so does a business. A business has an infancy stage, a toddler stage, an adolescent stage, and an adult stage. Talking to franchisees at different stages of “development” will give you an idea of what to expect at different stages of maturity.
The list of questions that follow addresses some of these as well as other areas of importance. Keeping the above in mind as you ask your questions should greatly enhance your decision-making process.
NOTE: The franchisees that you will be contacting are business owners and likely very busy. If some do not respond to your inquiry keep this in mind. Those that do respond have given you a good deal of time and shared valuable information. Be generous with your thanks for their generosity!
Questions to ask Franchisees
- How long have you been in the business?
- How would you describe your adjustment to this business?
- What is your business background?
- My business background is……. Is that a good fit for the business?
- What do you feel is the main function of the owner of this business? Please describe a typical day.
- Are you working full-time in the business?
- About how many hours per week do you spend in the business?
- What do you like best and least about this business?
- How would you rate your initial training? Ongoing training?
- How would you rate your ongoing support?
- If you need assistance, do you get it easily?
- How do you rate the franchisee’s relationship with the franchisor?
- How do you rate the management of the franchise company?
- How do you rate the marketing and advertising and promotional programs?
- Does your location meet your customer’s needs?
- Who picked your site?
- How involved in site selection was the franchise company?
- How difficult is it to find, train, and retain employees?
- Did the franchisor help with, or review your business plan?
- How is the business doing, in relation to your business plan? (Note: this is a critical question. A young business may be “struggling” and at the same time be at, or better than the business plan. “Struggle” is the norm for a young business!
- How are you doing in your business?
- Are you pleased with your earnings? If the franchisor made earnings claims are your earnings close to that earnings claim?
- Do you see your volume growing?
- What is your best ballpark estimate of your annual growth?
- If you had to do it again, would you buy this franchise?
- Do you own, or would like to own, additional units?
- Are you aware of any franchisees who are doing great with the business? Do you know why?
- Are you aware of any franchisees that are not happy with the business? Do you know why?
- Would you help me out by sharing with me some of your monthly costs of doing business:
$__________Advertising and Promotions
$__________Inventory/Cost of Goods
- How much can I reasonably expect to earn in my first year? Second year? Third year?
- Is there anything else that you would like to share with me, or that you think might help me?