Investing in a franchise business can be profitable, but it’s important to do your due diligence before making any commitments. Asking the right questions of your franchisor will help you understand their business model, the support you will receive, and the potential risks involved. In this article, we’ll share 30 important questions to ask your franchisor before investing, to help you make an informed decision. Let’s get started!
Additionally, we strongly recommend consulting with a franchise attorney before entering into any agreements to understand the legal ramifications.
What is the franchise discovery process?
The franchise discovery process is important when learning how to buy a franchise. This step allows you to learn about the franchisor’s business model, support system, and financial requirements. The process involves a series of conversations, meetings, and research to help potential franchisees make an informed decision. Going through the franchise discovery process helps you understand what it takes to run a business and determine whether it aligns with your goals and values.
Why is it important for potential franchisees to ask questions before buying?
Before investing in a franchise organization, prospective franchisees should ask many questions to help them make an informed decision. Understanding the commitment expected of a franchise owner and assessing personal motivations are key in this process. Here are five reasons why asking questions is essential:
- Clarifying the franchise system: Asking questions helps prospective franchisees understand the specifics of the franchise system, including the operations, products, and services offered.
- Evaluate your business model: Asking questions can help you evaluate whether your franchise business model is aligned with the goals and skills of your potential franchisees.
- Evaluate your financial requirements: To ensure a franchise is a viable investment, franchisees need to understand the financial requirements, including the initial investment, ongoing fees, and royalties.
- Understand your support system: The questions will help you evaluate the franchisor’s support system, including ongoing training, marketing, and support.
- Identify risks: Asking questions about the risks associated with franchising can help potential franchisees make an informed decision about their investment.
Gathering information and making informed decisions is key to building a successful business as a franchisee. Here are some key questions to ask about a franchisor’s brand, operations and support:
1. What do I need to know about joining a franchise system?
Important information about expectations, obligations and potential challenges that potential franchisees need to understand.
2. What are the most common challenges franchisees face and how do you help them overcome these challenges?
Demonstrates the franchisor’s support and resources to help franchisees succeed. Helps potential franchisees evaluate this level of support.
This allows the franchisor to highlight successful franchisees and their characteristics, and potential franchisees can assess suitability based on these characteristics.
4. How do you ensure that all franchisees maintain consistent quality and customer service standards?
Ensures brand consistency and reputation through quality and service standards. Demonstrates the franchisor’s values and commitment to the brand’s reputation.
5. How do you stay on top of industry trends and adapt your franchise system accordingly?
This demonstrates the franchisor’s ability to adapt and innovate to remain competitive and allows potential franchisees to gauge the franchisor’s long-term success.
Financial Questions to Ask a Franchisor Before Buying
When considering a franchise opportunity, it is important to understand the financial obligations and potential return on investment. Here are some important financial questions to ask the franchisor before purchasing:
6. What is included in the initial franchise fee?
Understanding what is included in the franchise fee is important for potential franchisees to assess the value and investment required.
7. Are there any ongoing royalties or advertising fees? If so, how much are they and how are they calculated?
Being clear about ongoing fees and rates allows potential franchisees to evaluate costs and understand how payments will be calculated.
8. How much capital do you need to have available to cover all start-up costs, including equipment, inventory, and other expenses?
Determining capital needs allows potential franchisees to assess their financial capabilities and plan their financial requirements.
9. Are there financing options such as loans or installment payments available to cover the initial franchise and start-up costs?
Understanding financing options allows potential franchisees to assess their ability to pay and plan for their financial requirements.
10. How long does it typically take for a franchisee to break even and start making a profit, and what factors affect this timeline?
Understanding the timeline for profitability and identifying the factors that impact this timeline can help potential franchisees evaluate their financial planning and the feasibility of the franchise opportunity.
Questions to ask your franchisor about their business model
Understanding the franchise model and how it operates is crucial to your success as a franchisee. Key questions to ask your franchisor about their business model include:
11. What is unique about your business model compared to your competitors?
Ask about the unique aspects of the franchisor and learn how they stand out from their competitors. This will help you determine if their business model is right for you.
12. How do franchisees make money and what are their primary sources of revenue?
Knowing your franchise’s primary revenue streams will give you insight into the profitability and revenue potential of your business.
13. What are typical franchise profit margins and how do they compare to industry standards?
Profit margins are very important in assessing the financial viability of a franchise. Knowing typical profit margins will help you compare them to industry standards.
14. How has your business model evolved over time and what changes do you foresee in the future?
Insights into the evolution and future changes of your franchise can help you evaluate your long-term strategy and adaptability.
15. What market research and analysis have you conducted to ensure the viability of your business model?
Asking about market research can give you insight into the franchisor’s industry expertise and trends, helping you evaluate the feasibility of franchising.
Questions to ask the franchisor about the franchise agreement
The Franchise Disclosure Document and Franchise Agreement are important documents that govern the relationship between franchisor and franchisee. Here are some important questions to ask your franchisor about these documents:
16. What are the key terms of the franchise agreement, including its term and renewal options?
Evaluating the length of a franchise agreement and renewal options can help potential franchisees plan for a long-term agreement.
17. Are there any restrictions on how I can operate my business, such as limitations on the products or services offered?
Identifying operational constraints allows potential franchisees to understand the limitations of their business and evaluate the impact on performance.
18. What are the termination conditions stated in the agreement and what happens to the franchisee’s investment in the event of termination?
Understanding termination terms and investment protections can help potential franchisees evaluate the risks associated with a franchise opportunity.
Knowing the level of legal and financial support a franchisor provides can help potential franchisees assess their own expertise and the level of assistance they may need.
20. Does the Agreement provide for any territorial restrictions and how are they enforced?
Evaluating territorial restrictions and their enforcement can help potential franchisees evaluate the competition and determine their potential market share.
Questions about ongoing support for the franchisor
A strong, ongoing support system is important for a franchisee to be successful. Here are some key questions to ask your franchisor about the training programs, ongoing support, and resources available to franchisees.
21. How much time does mentoring by existing franchisees take?
Mentoring from existing franchisees is an invaluable resource for new franchisees. This question helps potential franchisees understand the amount of time available for such mentoring.
22. What training and support is provided to new franchisees and for how long?
New franchisees require comprehensive training and support to be successful. This question informs potential franchisees about the resources available and the duration of such training.
23. What ongoing support will franchisees receive once they are in business, and how will that support be provided (phone, email, in person, etc.)?
Ongoing support is essential to a franchisee’s long-term success, and this question helps you learn what support is available and how it can be provided.
24. Are there any ongoing fees associated with access to support and resources? What do these fees include?
Ongoing fees can be a significant expense for franchisees, so this helps franchisees understand the costs associated with ongoing support and access to resources.
25. What support is available to assist franchisees with their marketing and advertising activities, and what resources will be provided for these activities?
Effective marketing and advertising leads to business success, and this information informs potential franchisees about the support and resources available for their marketing and advertising efforts.
Sales and Marketing Questions to Ask Your Franchisor
As a business owner, understanding the sales and marketing strategy of your franchise is critical to your success. Here are some important questions to ask your franchisor about their sales and marketing efforts:
26. What marketing support does franchisee receive and how is it funded?
It makes sense to ask this question because effective marketing is vital to a franchisee’s success.
27. Is there a national marketing fund and how is the money allocated?
National marketing funds can be a powerful tool for franchisees.
28. What marketing materials are available to franchisees and can they be customized for the local market?
Effective marketing materials lead to business success, so this question helps you understand what marketing materials are available and whether they can be customized for your local market.
29. How do you maintain brand consistency across different locations and what support is provided to franchisees to meet brand standards?
Brand consistency is vital to a franchisee’s success, so it is important to understand how franchisors can maintain brand consistency across multiple locations and the support they can provide to franchisees.
30. What sales training is provided to franchisees and how are sales goals set and tracked?
Effective sales training is essential to franchisee success. Prospective franchisees should understand what sales training is available and how to set and track sales goals.
How can you impress a franchisor?
To impress a franchisor and increase your chances of winning a franchise, you first need to understand how and what not to do to speak to franchise company executives. It’s important to do your research, show your enthusiasm for the brand, and have a solid business plan. Having questions prepared and demonstrating your ability to follow the franchisor’s system will also help you make a good impression. Check out our franchise guide for more tips.
How do you negotiate with a franchisor?
Negotiating with a franchisor can be difficult, but it is important to remember that franchise agreements are legal. It is important to fully understand the terms of the agreement before entering into negotiations. Identifying key areas of negotiation and being willing to compromise can help both parties reach a mutually beneficial agreement.
Image: Envato Elements
