THE BIG 30
Top 30 questions you should ask your franchisor.
Crucial questions to ask franchisors.
Before you buy a franchise, before you even get close to signing a deal, there are a host of questions you might ask that shine light on whether or not this franchise opportunity is right for you.
In the excitement of discovering you could build a business with a brand you’re passionate about it’s easy to gloss over some of the critical details. And when time seems a priority – you don’t want to let this one slip by – doing further investigation can seem to be putting the brakes on.
The preparation done before you commit to a franchise will, however, stand you in good stead once you are operating the business. There are no guarantees in life, or in franchising, but the more information you have at your fingertips the better prepared you will be.
For example, you’ll want to know about the business itself, to find out about the people behind and in the franchise, discover what franchisees past and present think, and get independent legal and accounting advice.
THE BUSINESS Remember, the franchisor is there to grant you a franchise. It’s important that you are comfortable with the level of information provided, and the content of that information.
As a potential franchisee you could ask questions of the national franchise manager, who is probably your first contact. But you can also find out from other people on the franchise management team you might meet or speak with: the CEO or MD, the operations manager, the training manager.
1 WHEN DID THE BUSINESS START FRANCHISING?
It’s reassuring to know the business has been operating for some time because it shows a track record. If the business is relatively new to franchising, ask a follow-up question: how long was the business operating before it became a franchise network?
2 WHAT PERCENTAGE OF OUTLETS ARE FRANCHISED?
Are all the outlets franchised or are some company owned? Find out whether the company-owned outlets are waiting to be franchised or are part of a corporate ownership strategy. These company-owned outlets can be training venues for franchisees and testing sites for new ideas.
3 HOW MANY OF THESE FRANCHISEES RENEW THEIR AGREEMENT?
Understand what the trend is for renewals, and if a lot of franchisees are not renewing, try and find out why.
4 WHAT PEAKS AND TROUGHS ARE THERE IN THE BUSINESS?
This is not just applicable to seasonal businesses – it’s good to understand any trading patterns before you get into the franchise. This also might affect when you decide to invest in the business.
5 HOW MUCH WORKING CAPITAL IS REQUIRED?
Don’t start your new business without enough cash on hand to tide you over while the revenue builds.
6 WHAT TRAINING IS INCLUDED IN THE INITIAL COST OF THE FRANCHISE?
Great training will give you a confident start to your business but if you need to pay extra, you’ll need to put this in your budget.
7 WHAT MARKETING SUPPORT IS PROVIDED?
Does the franchisor provide an opening campaign to help kickstart your business? Marketing is crucial to your operation so you’ll want ongoing support too.
8 HOW OFTEN IS THE OPERATING MANUAL UPDATED, AND CAN I SEE IT?
Once you are well on your way to committing to a franchise it should be possible to view the operations manual on-site. Find out if it’s regularly updated, and how it is available.
9 DO I HAVE TO USE PREFERRED SUPPLIERS?
If the answer is yes, find out how restrictive this is, and whether or not the franchisor receives a supplier rebate.
10 WILL I GET ANY ASSISTANCE WITH STAFF RECRUITMENT AND TRAINING?
If you’re inexperienced in this area of business it helps to have guidelines and processes to follow as you set up your team.
11 WHAT MINIMUM ORDERS OR BENCHMARKS DO I HAVE TO MEET?
Each franchisee has a different ambition but many franchise systems encourage or set targets for performance. Ensure you understand what’s required.
12 CAN YOU DEMONSTRATE YOUR CAPACITY TO OFFER ONGOING SUPPORT FOR FRANCHISEES?
What other ways can the franchisor help you achieve your goals?
13 WHO WILL BE MY MAIN CONTACT?
It’s likely that you’ll have a business development or field manager as your main contact – ask if you can meet them.
14 HOW DO FRANCHISEES CONNECT WITH EACH OTHER?
Mentoring, regular regional meetings, intranet … there are a host of ways a franchisee network can stay communicated. Find out what works best in this franchise system.
15 HOW, AND HOW OFTEN, DOES THE FRANCHISOR CONNECT WITH FRANCHISEES?
Poor communication from the franchisor is commonly cited as a major source of dissatisfaction among disgruntled franchisees.
16 WHAT HAPPENS IF MY BUSINESS IS NOT A SUCCESS?
Discover what business support is available to help underperforming franchisees. A good system will have a clear process for this.
17 WHAT IS THE PROCESS FOR SELLING ON MY BUSINESS?
Whenever you decide to sell your business (during or at the end of the agreed term) there are likely to be restrictions on who you sell to – the franchisor commonly wants to approve any incoming franchisee, for obvious reasons.
18 HOW ARE ANY ONLINE SALES MANAGED ACROSS THE NETWORK?
E-commerce is increasingly important and if it’s part of your franchise offer, find out how that works for franchisees.
19 HOW OFTEN WILL I NEED TO REFURBISH MY STORE?
The franchisor, and the landlord, may require your outlet to be refurbished after a period of time. This will be at your expense so you need to know right at the beginning what investment you’ll have to find so you can include it in your long term budget.
20 WHO LOCATES THE SITE AND NEGOTIATES THE DEAL?
One of the benefits of franchising is tapping into expertise. Find out how much input your franchisor (and/or specialist firm) will have in your site selection and lease agreement negotiation.
21 WHO HOLDS THE HEAD LEASE?
Franchisees can either be responsible for their lease as the head lessee, or sub-lease it from the franchisor who then has ultimate responsibility for the lease. This is an important one to know.
22 IS THERE ANY EXCLUSIVITY WITH THE AGREEMENT?
Territories are sold as exclusive or non-exclusive. There are nuances to each according to the franchise so check what’s actually involved.
23 WHAT ARE THE CRITERIA YOU USE TO SELECT FRANCHISEES?
Is there a structure with clear measures for franchisee selection? It’s worth understanding the process.
24 WHAT DO YOU THINK ARE MY STRENGTHS AND WEAKNESSES AS A FRANCHISE CANDIDATE?
Ask the franchise recruitment manager to highlight the pros and cons of your application. It will give you an understanding of their thinking, and you may be able to elaborate on or fix any concerns.
You can ask the most senior executive that you meet about the structure of the business.
25 WHAT IS THE EXPANSION PLAN FOR THE NEXT FIVE YEARS?
Is there a vision and a strategy for the business that makes sense to you? Every business needs a clear sense of direction.
26 WHAT EXPERIENCE DOES YOUR TEAM HAVE IN BUSINESS AND FRANCHISING?
It’s good to know that franchising is ingrained in the management and field teams.
27 IF THIS FRANCHISE ORIGINATED OUTSIDE AUSTRALIA HOW MUCH DOES IT IMPACT ON LOCAL OPERATIONS?
There are pros and cons to a business headquartered overseas. Learn what the structure looks like for this franchise, and the reporting process.
28 WHO OWNS THE INTELLECTUAL PROPERTY?
Businesses can separate their IP from the operating side of the business and put it under separate ownership. It’s important to know the facts in case of an acquisition or franchisor failure.
29 DO YOU HAVE A FINANCIAL INVESTMENT IN THE BUSINESS?
Find out who owns the business and whether or not the CEO or GM has skin in the game.
30 IS YOUR BUSINESS A MEMBER OF THE FRANCHISE COUNCIL OF AUSTRALIA AND LISTED ON THE AUSTRALIAN FRANCHISE REGISTRY?
In a time of increased scrutiny in franchising, brands that are committed to transparency and high standards have an obvious advantage attracting franchisees.
Remember that these questions are just part of thorough due diligence. It’s worth digging deep to find out the most you can about your potential franchise. And then cross-checking information with other sources such as franchisees, franchise lawyers and accountants, and business advisers.