10 Questions To Ask A Franchisor Before Buying A Franchise
Investing in a franchise is a major decision that you'll want to research carefully. Even after you've done your due diligence and narrowed down your options, it's important to get to know the people who run the franchise you're considering and find out the finer points of the business. In the industry, this is called the "discovery process."
Larger franchisors have multistep, structured processes that typically start with a phone call, include several presentations and end with a trip to the corporate headquarters for a "discovery day" (or a virtual one due to Covid-19). With smaller brands, it might be a less-structured process, where you could start with a phone call with the CEO or founder. Either way, you will have the opportunity to ask some pointed questions to determine if the franchise is a good fit. Here, I've outlined 10 questions to ask a franchisor.
1. Who is your ideal candidate?
Listen carefully to what a franchisor has to say about an ideal candidate. Does it sound like you? A good franchisor will vet you at the same time you vet them. If you're not a good fit, it's much better to find out before you sign the franchise agreement.
2. What changes did you make to support franchisees through Covid-19?
This is a biggie and a question you couldn't have asked a year ago. Knowing how things went in the worst of times will give you insights into how things might go in the best of times — or in the event of another crisis.
Through the pandemic, good franchisors went above and beyond in support of franchisees. They kept franchisees informed, helped obtain paycheck-protection-program funding and added Covid-19-specific marketing initiatives. Some even waived fees, added new technology and brought in additional revenue streams.
3. What does it take to be successful as a franchise owner?
Although all franchisors will train you and give you a system to follow, some require a specific skill set. If the franchisor tells you that you will need to network and build relationships in your community, it means you will have to spend time connecting with people at local networking groups to build a clientele. It also means some sales skills are needed. Not for you? Then maybe it's time to move on. If the franchisor says you should have team-building skills, take it seriously. If you prefer working solo or don't like delegating, you should look elsewhere.
4. What sets your brand apart from its competition?
Competition is part of any business, so it's important to understand a brand's differentiators. If you're set on a fitness franchise, you'll want to understand what sets the brand apart and determine if it's a concept that you like. Maybe you consider Pilates silly, for example, but like the numbers. Think twice before you invest. It's your business, so you should — at the very least — buy into the concept. Make sure you understand the business model and value proposition.
5. What is your failure rate? How many locations have closed and why?
Even the best franchise brands have closed locations for one reason or another. In some cases, it's the franchisee's fault. Maybe they didn’t have the proper skill set or follow the system. In other cases, it's the franchisor's fault. It could be a bad business model or insufficient training. No one goes into business to fail, so it's important to examine a brand's failures no matter who was at fault.
6. How financially strong is your franchise?
After seeing the pandemic's wrath, it's important to understand a franchisor's financial health. Can the franchisor keep the support staff on payroll during a downturn? Does the franchisor have enough capital to keep going if no royalties are coming in?
7. What is a typical day like for a franchisee?
What you'll do all day can vary greatly depending on the brand and business model. Are you a hands-on worker or more of a delegator? Make sure what the franchisor describes appeals to you.
8. Can I hear from other franchisees?
Most franchisors will give you a list of franchisees to call. This process is called validation. Don't skip this important step, as it will give you the best insights into ownership. Even if you're totally sold on the franchise, you owe it to yourself to talk to as many franchisees as you can to get a behind-the-scenes perspective on running the business.
9. Will I have a protected territory?
A franchisee's territory is the area in which the franchise can operate. Territories vary depending on the brand and customer base. Some, such as senior care franchises, might determine a territory based on the senior population in the area. Others, such as gyms and food franchises, might set a location based on a fixed radius. Either way, you will want to ask if your territory is protected, meaning that the franchisor won't grant any other locations within your territory. I also suggest asking about the possibility of renegotiating this in the future. If your contract is up in 10 years, for example, could the territory change?
10. How can I scale my business?
You might start out with one territory, but a couple of years down the road, you might want to add more locations. Ask the franchisor if they have plans for areas adjacent to your territory, as well as if "first refusal rights" are given.
There is a lot to think about when investing in a franchise. A good franchisor will happily answer all of your questions and have a lot to ask you as well. After all, a franchisor's success is based on the success of their franchisees.
