Franchise questions to keep in mind
A franchise agreement is a comprehensive legal document that often contains more than a hundred pages. There are even instances when even experts like franchise lawyers find it challenging to explain the legal document to potential franchise owners. However, if you familiarize yourself with the right franchise questions and the people whom you need to ask, buying a franchise will be a lot easier for you. The answers of existing franchisees are as valuable as the answers of the parent company. Here are the top 20 franchise questions you need to keep in mind -12 questions for the franchisor and 8 for existing franchise owners:
Questions to ask a parent corporation:
1. What is the total cost of buying a franchise? A franchise agreement should state the total figures for the franchise and royalty fees. However, the amount for other expenses like inventory, location, and vehicles is declared in values like $200,000 to $500,000, which is actually quite high. 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. Do you offer other franchises in the system? If there are other franchises, 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. A high-risk opportunity, on the other hand, is also a tempting offer. There are franchisors that provide master franchising rights to an entire state or even a national region.
3. Where are the locations of the franchise? If you choose a nationwide franchise, you have the advantage of mass buying power for inventory and supplies. A regional franchise, on the other hand, may provide a better range of services and products based on local demand. Remember that products and services that have good selling turnout in either coast may not have the same following in Midwest.
4. Are there locations that closed down? What are the reasons for closure? There is a law that requires all franchisors to share information regarding the number of franchisees that are no longer operational in their system. A good standing company should be honest and open about this aspect and must explain to prospective franchisees the reason behind the failure of some of their locations.
5. Is there an existing lawsuit between the parent company and the franchisees? This is really important for you to know as you will be able to see how the parent company handles disputes within its franchise system.
6. How experienced is your management team? It is essential to understand the experience and background of the upper management in buying a franchise. Take note if there have been major turnovers among the franchise’s corporate players. If so, the franchising system of the company is unstable.
7. Who are your competitors? What is your advantage against competition? While you may already know the answer to this question, it still best to hear what the franchisor has to say about its competition in the market.
8. What will be my territory if I join the franchise? How will you protect my business in such territory? For your location to be successful, avoiding other franchisees is a good move. A small business area will not be able to generate the cash you need to succeed.
9. How will your corporate team support me in the process of choosing my location? You need to discuss the business location to the franchisor and a real estate expert if you intend to buy a retail franchise. You must tour around your prospective locations and choose a spot with good traffic and visibility.
10. How much input is required from franchisees to contribute in expenditures and ad placements? Most franchise agreements include the costs for the national, regional, and local advertising and marketing. These are the inclusions of the royalty fees that are paid monthly or yearly.There are some franchises though that do not require promotional input from their franchisees. However, they can earn bigger sales when they listen to the advertising and marketing ideas of their franchisees.
11. Do I need to order and buy certain items or equipment directly from the franchisor? To maintain the consistency and quality in the standards of the company, franchisors have a list of inventory and supplies to be given to their franchisees.
12. What happens if the parent company is sold? Before you buy a franchise, it is best to inquire about the company’s exit strategy. It is easier for you to plan on necessary transition if you know the company’s moves beforehand.
Learn the right questions to ask existing franchisees:
13. How long before you start earning profits? The franchisees’ answers to this question will surely give you an idea of what to expect. Do take note though, that every franchise is different based on location, clientele, as well as the entrepreneurial skills of the owner.
14. Was your opening cost in line with the amount you expected? The answer to this question gives you an idea of how much you’ll be spending on the opening day of your location.
15. Is the support of the parent company enough? Since you’ll be expecting support from your prospect franchisors, this information is very important. Take note of the concerns stated by every franchisee.
16. Are there initial and ongoing trainings? 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. Has there been an issue between you and the parent company? You have asked this question to the franchisor, it is best to hear the side of the franchisee.
18. What do you think is the company’s major competitive advantage and disadvantage against its competitors? This is to give you an idea of how the company deals with competitors.
19. Would you alter anything on the present promotional methods of the franchise? You see, some promotional methods rise impressively to the corporate level, while others unfortunately fall flat at the retail level.
20. If given the opportunity to do it all over again, would you still choose to purchase this franchise? A positive answer is a good sign that the franchise is a wise opportunity to get into. Better move on to your list of prospect franchises if the answer is negative.