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20 Franchise Questions: What You Need to Ask Before Buying a Franchise

Guest post by: Global BX

Article Overview: A franchise agreement is a comprehensive legal document that often contains more than a hundred pages. Sometimes, even the most experienced franchise lawyers find it difficult to explain the text to a potential franchisee. However, if you know the right questions to ask as well as the right person to ask, then the process of obtaining a franchise becomes a whole lot smoother and easier.

20 Franchise Questions: What You Need to Ask Before Buying a Franchise

Knowing the Right Franchise Questions to Ask

A franchise agreement is a comprehensive legal document that often contains more than a hundred pages. Sometimes, even the most experienced franchise lawyers find it difficult to explain the text to a potential franchisee. However, if you know the right questions to ask as well as the right person to ask, then the process of obtaining a franchise becomes a whole lot smoother and easier. The answers you get from existing franchisees are just as valuable as the ones you get from the parent corporation. Here are some guide questions when purchasing a franchise - 12 for the franchisor and 8 for the existing franchisees.

Questions to Ask a Franchise / Franchisor

1. What is the overall cost of owning a franchise? Franchise agreements state the amount that you need to pay for the franchise fee and royalty dues but the total costs, which include the location, equipment, inventory, vehicles, and other expenses, are usually stated in a range of values like, from $200,000 to $500,000, which is quite a steep estimate! It should be pretty easy for the franchisor to further narrow the ballpark figure based on real estate values in your location and other variables.

2. Are there other franchises in your system? If so, how many? The number of franchises does not necessarily show the franchise's market standing. In fact, you should not be looking at the number of franchises, but rather on the company's history and ensure a well-tested franchising system. On the other hand, a high-risk proposition can also be incredibly tempting. There are some franchisors that are willing to offer you master franchising rights to a national region or even an entire state.

3. Where are your franchises' locations? You can have the advantage of a huge buying power for supplies and inventory if you choose a nationwide franchise. A regional franchise, on the other hand, may provide a better range of services and products based on local demand. Note that the products that sell well on either coast do not automatically have the same following in the Midwest.

4. How many branches have closed down? Why? The law requires all franchisors to divulge all the franchises that are no longer operational and an honorable company should be open about it and be willing to explain why some franchisees have left the system.

5. Were there any lawsuits in the past between the franchisor and franchisees? This information is important because this can provide you with a good insight on how the parent company handles disputes with the franchisees.

6. How experienced is your management team? Understanding the upper management's background and experience on the industry is really important when buying a franchise. Take note if there have been major turnovers among the franchise's corporate players. If so, this could mean that the company's basic franchising system is weak or unstable.

7. Who are your competitors? Why should I go for your franchise and not theirs? You might already know the answer to this question if you have researched about the company beforehand although hearing what the franchisor has to say about its major competitors in the industry will give you more insight.

8. What will be my operational territory? How will the company protect my business within it? To make your business successful, you need to avoid other franchisees in the system. A small business area will not be able to generate the cash you need to succeed.

9. How will your corporate team assist me in choosing my business location? If you are planning to open a retail franchise, the location is a very important aspect that you need to thoroughly discuss with the franchisor and a real estate expert. You need to tour around your prospect areas and select a spot that has the optimal visibility and high traffic levels.

10. How much input can I contribute in terms of ad placements and expenditures? Most franchise agreements already include the cost of national, regional, and local advertising and marketing campaigns in the royalty fees due monthly and annually. Some franchises do not require any promotional input from the franchisee but franchisors earn greater sales when they get input or listen to their franchisees' ideas on marketing and advertising.

11. What are the items or equipment that I need to buy directly from the franchisor? All companies that offer franchise programs already have an inventory and list of supplies that they provide to all franchisees to ensure quality and the consistency in the standards of the company.

12. What happens when the parent company is sold? As a prospective franchisee, it is a must for you to know the parent company's exit strategy. This way, you know beforehand the plans of the company and you can prepare yourself for the necessary transitions that will take place.

Questions to Ask the Other Franchisees

13. How long did it take you to earn profits? The answers provided by other franchisees will give you a timetable for your own expectations. Do take note though, that every franchise is different based on location, clientele, as well as the entrepreneurial skills of the owner.

14. How close was your opening cost to the one you originally expected? This gives you an idea of how much money you are likely to spend, regardless of the amount declared by the home office in its marketing materials.

15. Are you satisfied with the support provided by the franchisor? Since you'll be expecting support from your prospect franchisors, this information is very important. Note any particular concern mentioned by the franchisees.

16. Are the initial and ongoing trainings sufficient? Once you have determined the training shortfalls experienced by other franchisees, you will be prepared to address similar issues during your own training period.

17. Have you or any other franchisee encountered a dispute with the parent company? You have asked the same question to the franchisor, but it is best to hear the other side from the existing franchisees.

18. What do you think is the company's major competitive advantage and disadvantage against its competitors? The franchisees' answers will most likely lead to a very valuable discussion of the company's competition and how the franchisees rise above it.

19. Would you change anything on the company's present marketing methods? You see, some promotional methods rise impressively to the corporate level, while others unfortunately fall flat at the retail level.

20. Given the chance to do it all over again, would you still engage in this franchise? If the answer is positive, then you are good to go in buying a franchise. Otherwise, you might want to consider other franchise prospects.

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Article Tags: before buying a franchise, buying a franchise, franchise questions, franchisee questions, franchises



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Re: Info for would be franchisers... - [quote="Sebastien":1d29sdv1]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to. I just want to mention that all these magazines are NOT franchisee oriented. I mean these magazines are for franchise professionals. If you're looking to buy a franchise, you won't find much information in there. To answer your question, getting published in Franchise Times was fairly easy. I don't want to brag too much but I think I am known in the franchise industry. I was the marketing guy at Franchise.com for a few years before joining my new company, the World Franchising Network. So people know me and I have a very good relationship with Nancy Weingartner, the Managing Editor at Franchise Times. I was talking with her at the last Franchise Expo South in Miami and she mentioned she'd like me to be profiled. I was like "ok, sure!". I like this franchise executive profile thing in Franchise Times as it is rarely BS. People are usually really natural in there.[/quote:1d29sdv1] Thanks for the follow up Sebastien! And I can't say that I'm surprised that networking with the right people and managing your relationships with them properly are the keys to being published. I guess the old adage holds true of "it's not who you know, but who knows you" that's important.
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Re: Info for would be franchisers... - [quote="Sebastien":2gam0klq][quote="BuzzAroundBooks":2gam0klq]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to.[/quote:2gam0klq][/quote:2gam0klq] That is really what I look for in any industry publication. We lead busy lives and when people fill their magazines with fluff, not only does it benefit no one, but it makes us truly appreciate those that don't. Thanks!


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