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Talking with Franchisees - How to make the most of your due diligence calls

Written by: Kimberly Ellis

Article Overview: When researching a franchise opportunity, one of the most important things you will do is to talk to current franchisees in the system. No one knows the business like those out in the field and, providing you build the proper rapport, they are likely to give you candid answers to your questions which will in turn help you decide if this opportunity is right for you. You will want to speak with a number of franchisees, preferably some of whom are very successful and also some who are struggling. By reviewing the responses and comparing your own management style to those currently operating stores, you will have a better idea of where you might end up if you purchase this franchise.

Talking with Franchisees - How to make the most of your due diligence calls

Talking with Franchisees
How to make the most of your due diligence calls to a franchisor’s current franchisees

When researching a franchise opportunity, one of the most important things you will do is to talk to current franchisees in the system. No one knows the business like those out in the field and, providing you build the proper rapport, they are likely to give you candid answers to your questions which will in turn help you decide if this opportunity is right for you.

You will want to speak with a number of franchisees, preferably some of whom are very successful and also some who are struggling. By reviewing the responses and comparing your own management style to those currently operating stores, you will have a better idea of where you might end up if you purchase this franchise.

One thing to keep in mind is that there will be a number of people at any given time who will be researching franchise opportunities and a franchisor’s more successful franchisees in particular have to field a number of these calls. Therefore having a clear itinerary of subjects to discuss will not only help you, by organizing your call, but also the busy franchisee by keeping your call on subject.

You will find that the following list covers the most important areas you will want to cover during your calls with the existing franchisees:

Franchisor/Franchisee Relations. How do the franchisees feel about their relationship with the franchise company? Are they getting the support they want and need? Do they feel the franchisor cares about their success and is willing to help them as needed? A good franchise company will work continuously to keep their current franchisees happy and open communication is paramount. If the majority of franchisees feel good about the franchisor, it is a sign that the company is supportive, caring and focused on the success of their franchisees.

Training. Ideally, the training a new franchisee receives should prepare him to open and run the business. If you hear from the franchisees that they were unprepared for some of these issues, you could assume the training program needs more work. Be sure you understand the critical elements necessary for success and how the franchisor will help provide these elements before you become involved.

General Support. You should expect to get a glowing report on the overall support provided by a franchisor from the franchisees who have been in business for a while. This support should include helping the franchisees resolve any problems that arise and providing ongoing training as needed. A franchisor should also be responsive to changes in the marketplace so you will want to gauge the comments of franchisees about how innovations/changes to the system are integrated.

Opening Support. A franchise company can truly shine when it provides superior support to the new franchisee during the opening of the business. Ask the existing franchisees if they received assistance in site selection, lease negotiations, build-out and permit processes, or any other areas unique to the opening of the business.

Marketing Programs. You won’t make a profit if you don’t have customers and for that reason most franchisors collect marketing dollars from each of their franchisees and spend the combined amount to promote brand awareness on a large scale. Being part of a well-known brand is a major advantage of a franchise system and usually worth the money spent. Find out how the existing franchisees feel about the way their money is spent but beware – this is the one area you are most likely to find complaints as every franchisee considers himself a marketing expert. Balancing all feedback is essential in this area.

Initial Investment. Before calling any franchisee you should have read the franchisor’s UFOC, which will give you a wide range for the total initial investment that is required for opening this business. You can get a better feel for the investment required by talking to the franchisees and learning what they spent, and even more importantly, learning what they’d do differently if they could do it over again. This is a great question for franchisees who operate in markets similar to yours as you can get a better idea of the costs you will face opening your franchise.

Purchasing Power. This is another huge advantage of being part of a franchise system so be sure to find out if the franchisor uses the collective buying power of the total system to get discounted pricing on equipment and inventory.

Earnings. Everyone’s favorite subject, the discussion of earnings between a franchisor and a potential franchisee is strictly regulated. While you can often find earnings information in Item 19 of the UFOC, your best source of information is from the current franchisees. Hopefully by the time you get to this question on your list, you will have developed a relationship with the franchisee and it will be comfortable for you to ask questions such as, “How long were you open before you showed a profit?” and “What is your typical net profit per month?” You can also glean valuable earnings information by talking about average number of customers, average ticket or invoice amount, or even average number of calls or visits per sale! If you don’t get a clear idea of what a typical unit earns, do not proceed with the purchase. You are not interested in franchising because you want to be surprised; you are buying a franchise because of the proven and provable value of the franchisor’s system.

Besides talking to current franchisees, you may want to talk to some former franchisees of the franchisor you are investigating. You will find the contact information of any franchisee who has left the system in the past year in the UFOC. You will want to find out why they left the system and what kind of experience they had. In some cases they will have left for personal reasons or perhaps because they found the opportunity wasn’t right for them. If you compare the responses of these people to those of the successful franchisees, you may be able to see a trend that will help you determine if 1) you identify with one group more than the other and 2) if the success or failure of a franchisee is due more to the personality/experience of the franchisee or to the support/system of the franchisor.

You satisfaction and happiness as a franchisee can depend not only on your success but on the overall culture of the franchise system. By talking to current franchisees you will learn the answers to many questions you may have but you will also find out if you’d fit in with the franchisees. These people will be your peers and valuable resources to you as you build your business. By talking to a number of franchisees you should get a clear picture of how you would fit in the organization.

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Book: Talking From 9 to 5 - Book: Talking From 9 to 5: How women's and men's conersational styles affect who gets heard, who gets credit, and what gets done at work Deborah Tannen, PhD 1994 You say something at a meeeting, it is ignored, then someone else says the same thing and everyone embraces it as a marvelous idea. You devote yourself to a project but don't get credit for the results. You work around the clock to avoid a crisis, but your efforts are not recognized because no one notices a crisis that never occurs. YOu give what you think are clear instructions, but the job is not done, or is done wrong. ... Work is a special world because as we talk to get our jobs done, we are also being evaluated. How we get others to do what we want, and how we accept or avoid responsibility for mistakes, display or challenge authority, reveal or conceal what we don't know -- all affect how we are regarded and rewarded. TOC 1. Women and Men Talking on the Job 2. "I'm sorry, I'm not apologizing": Conversational rituals 3. "Why don't you say what you mean?" Indirectness at work 4. Marked: Women in the workplace 5. The glass ceiling 6. "She's the boss": Women and authority 7. Talking up close: Status and connection 8. What's sex got to do with it 9. Who gets heard? Talking at meetings References Index
WSI Franchise - I haven't done much research on WSI, however, a quick peek at Franchisegator.com tells me that they have trained over 1500 franchisees, this is a good sign... but doing your 'due diligence' will get you the answers that will make or break the deal. I haven't seen them on any top 25 lists.
re: franchising mistakes - Great list Michele. I would expand on the first point re: due diligence, to call and speak with a number of existing franchisees. In my experience, I am amazed at *some* folks lack of due diligence... It's as if they are set on the concept, and have no desire to hear other opinions. While you may get a list of references from the Franchisor, it wouldn't hurt to call a few franchisees that are not on their approved list. You may be surprised at what you learn. I can think of a handful of franchise offerings (very recognizable brands) that, upon deeper research, would reveal a darker side that would send me - and any other sane entrepreneur - running in the opposite direction. Yet there are people still buying into the franchise concept with a glazed look in their eyes.
Due Dilligence - Hi Praveenv, I'm big on due diligence when exploring any type of business opportunity. One of the first things I would want to know is who else is is selling this distributor's products in their country? Would you be the first? I would ask for contact information for others who are selling his products in other countries, then contacting those parties and asking for input such as: 1. Do they pay in advance for the product, then sell it from their end? 2. Who takes care of customer service, returns? 3. Is risk equally assumed or does one party carry all of the risk? 4. Who makes up the target market for this product? 5. How are they best reaching members of that market? 6. Who are their biggest competitors and how do they differentiate their product from others? There are a host of questions to ask before proceeding with operational details. If I was satisfied with the information gathered, I would then seek out someone who is already doing what I plan to do. Someone else who is selling an overseas product using the internet -- and ask him/her for advice. Of course, legal guidance, etc. are a given. I'd make sure there are no assumptions and I have full understanding on what is involved before proceeding. (I've posted this reply in the first person because I simply want to give you a few things to think about -- not to tell you what to do. I can only recommend you do your due diligence and proceed with full knowledge of what is involved.) Good luck to you!
Re: 40 cents per dollar is spent in a franchised business - Hey Ringo, You quoted this information: "The average initial franchise investment is $250,000" Here is your statement/question: "While I understand that you are paying for someone else's success in development, marketing and business model, with such a big upfront investment, why not make something of your own?" The part I would like to comment on is where you say "with such a big upfront investment". On an average initial franchise investment of $250k, the buyer is only fronting 20-30% of that. So their initial cash investment is actually only $50k to $75k. Although that is nothing to sneeze at, if you have a good system that you are buying into and you have the drive and ability to be a good business owner, statistically speaking you stand a higher chance of success with a proven franchise than an independent business. Of course we have all heard the numbers that are thrown around by various folks about what the increased success rates are, I don't know what they are exactly, only what I have been told by "others". I always always recommend performing the proper due diligence when reviewing franchises. From what I understand the increased expenses of owning a franchise are more than offset by the increased revenues & increased profit dollars at the end of the day. There might be a few businesses though that are not conducive to franchising, for example a web based business is hard to franchise because of competition and low cost of entry. I review independent businesses and franchises every day. The thing that stands out more often than not is that the independent businesses are not doing as well as the franchises overall. Remember though, I might be a bit biased because I am a franchise consultant, so for full disclosure, I make money when people buy franchises. I think with the proper due diligence most people will make the right decision. Reducing risk, increased profits and financing options continue to make franchises popular to the average Joe. .


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