Questions to ask when buying a franchise
“You can never ask too many questions” doesn’t appear to be a quote attributed to anyone.
However, when buying a franchise it’s true. You can never ask too many questions.
Additionally, you only officially buy a franchise once you sign a contract. Before you officially sign your contract and get on with the hard work of building your franchise, use your time and energy to make sure this is the right investment for you.
As a franchise buyer there are many resources available to you. However, mistakes are made or franchise buyers buy the wrong franchise.
Just like life, there are no guarantees. However, to help increase your chances of successfully buying the right franchise, here are a set of questions to help your evaluation process.
Don’t try to ask all these questions in your first conversation with the franchisor. Just as you want to make sure this franchise is right for you, the franchisor also wants to make sure you are a suitable member of their elite group. If they don’t think you are a good fit then their answers to your questions will be unhelpful while they do their best to encourage you to look somewhere else.
Each question comes with my reason for asking that question or additional questions to ask. As I said earlier, you can never ask too many questions.
If you sense there is a hesitation or the answer lacks clarity, don’t push too hard at that moment but come back a later time and ask the same question but just a little differently.
Questions to ask when buying a franchise
I’ve learned through my research that before I can buy a franchise I must receive from you the Franchise Disclosure Document or FDD. Does your FDD disclose what I can expect to make if I buy a franchise? Does it disclose what current franchisees are making? If not, why not?
There may be different reasons why they do or they don’t. If they don’t it may be because it’s a newer franchise and they don’t have any meaningful data. There will be a reason. If the reason doesn’t make sense to you, look for another franchise opportunity. Also remember that you are able to speak to current franchisees so this is a question you can run past them.
Does your franchise offer any financial assistance such as a loan?
A franchisor is not a bank so don’t expect them to be too forthcoming with finance. Some franchisors do offer finance so there is no problem in asking. If they say yes to your question, ask for more details including what you need to provide to see if you would qualify for any of their finance.
The franchisor may have been approved by the Franchise Registry which is organized by the SBA. This means your loan application process should be quicker and easier as there are lenders that have agreed to execute an SBA loan to a qualified franchise buyer.
If yes what steps did you take?
If I am following the franchise model and find I’m not being successful, what assistance can I expect?
It’s in the interests of the franchisor for you to be a success. A franchisee that fails needs to be disclosed on the FDD. However, you have no interest in buying your franchise and failing. Understand everything that will be available to you to help you succeed.
This question may sound too simple but ask early on in your franchise buying process, what are the key 3-5 ingredients that make a franchisee successful?
Your reason for asking this simple question is to provide you with a quick reality check. If you lack one or more of the key ingredients, perhaps this franchise is not for you or maybe you need to ask deeper questions.
The FDD will show the franchise agreements that were in place and terminated by the franchisor.
Ask for reasons why these franchisees had their agreement terminated. Also, be aware that the franchisor will be limited in what they can disclose as there may have been confidential settlements.
How long does it take for a franchisee to achieve breakeven? Some follow on questions include:
Can you give me a summary of the shortest and the longest timeframes?
What were the reasons behind the longest time frames? Does it vary with each state in the US?
How much working capital do I need to operate my franchise?
This question ties in with the previous question. You want to know how long before you breakeven but just as importantly, you need to know how much money you will need before you start making money and if you have that money available or where you get it from.
How do you determine the franchise territory I will buy?
This question provides information at a couple of levels. It helps understand the franchisors business model with territories; which is one of the most important assets you are buying.
It also provides an opportunity to learn the location of the franchises near to your territory and how they operate.
It also provides an opportunity for you to go and visit these franchisees and get a better understanding of how the franchise concept operates.
Are franchisees part of an independent franchisee association?
Some franchisors welcome their franchisees having a separate group or association so they can discuss and come up with solutions. Often it happens as a by-product of local franchisees coming together to discuss and implement local marketing be it on radio or TV etc.
If a franchisor is not in favor of the idea, make sure the reason makes good sense.
How is the national the advertising fund spent?
This question is an extension of the last point above. An additional question to ask is if franchisees are involved in the decision making? The answer is important as you want to know why if the answer is no. If the answer is yes, ask if you can be involved as this is a great way to understand what’s happening in your franchise system.
The franchise evaluation process is probably the most important process to successfully buy your franchise. One of the best parts is that you can ask any question and expect an answer. Sometimes the answers will come further into the franchise buying or qualification process so don’t be surprised to hear that the answer to this question will come later.
If you would like more information about buying a franchise please visit my webpage Buy a franchise or buy a copy of my book – Successfully buy your franchise.
For more immediate help with buying a franchise, send an email to Andrew Rogerson or give me a call on 916 570-2674.
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