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Twenty Questions to Ask before you Buy a Franchise

Guest post by: Ed Teixeira

Article Overview: If you’re in the process of looking to purchase a franchise you need to perform the proper due diligence. This includes speaking with existing franchisees and using the services of your franchise attorney and financial advisor. To strengthen that process here are twenty questions to ask you need to ask before signing the franchise agreement.

Twenty Questions to Ask before you Buy a Franchise

If you're in the process of looking to purchase a franchise you need to perform the proper due diligence. This includes speaking with existing franchisees and using the services of your franchise attorney and financial advisor. To strengthen that process here are twenty questions to ask you need to ask before signing the franchise agreement. Twenty important questions you need to ask:

1) Do you understand that most new businesses, including franchises, typically do not reach break even for at least one year after start-up?

2) Do you have the savings or resources to provide for at least one year's expenses after you have paid for the franchise.

3) Are you prepared to relinquish some of your independence when operating as a franchisee?

4) Do you, your partner or spouse have experience working in or operating a business comparable to the franchise you're considering?

5) Has your accountant thoroughly reviewed the franchisor's financial statements? What is the ratio of initial franchise fees to on-going royalties?

6) Has your attorney reviewed the rights that the franchisor will retain regarding control over your operations and marketing?

7) Will the franchisor agree to negotiate certain terms of the franchise agreement?

8) Will you be required to execute a blanket personal guaranty for the franchisor?

9) Have you spoken with existing and former franchisees?

10) Have you asked existing franchisees if the franchise has met their financial and training expectations? If not where has it fallen short?

11) Does your franchise agreement allow the franchisor to sell to customers in your territory either directly or via the Internet?

12) Has the franchisor experienced franchisee terminations in excess of 10% of total franchisees? If yes, look into why.

13) How does the franchisor configure the franchisee territory?

14) Will the territory allow for sales growth and sufficient demand during a downturn?

15) Do you feel confident that the demand and prices for the product or service you're selling is sufficient in your proposed territory?

16) What is the level of competition in your territory?

17) Have you done a business plan and cash flow projections?

18) Has the franchisor provided you with any expense and suggested pricing data?

19) Has the franchisor had any encroachment issues with its franchisees or among franchisees? If yes, how were they resolved?

20) Have any of the franchisor representatives exerted pressure on you to purchase the franchise?

Once you've asked these questions, be sure to include the responses in your overall analysis of the franchise you're considering. This will provide you with a more through profile of the franchise opportunity and the franchisor.

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Article Tags: buy a franchise, franchise agreement, franchise attorney, franchisees, proper due diligence



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