What Questions Should You Ask Before Purchasing a Franchise?
Before purchasing a franchise, make sure to ask the questions below to evaluate the potential franchise opportunity.
Evaluate the Strength of the Franchisor
Investigate the Franchisor’s History:
- How long has the franchisor been in business?
- How many current franchisees are there?
- What is the failure rate of the franchisees?
- Are there any pending or past lawsuits and what have they been for?
- Does the franchisor have a reputation for quality products or services?
- What is the franchisor's financial health? (get its Dun & Bradstreet rating)
- credit rating
Review the franchisor's financial predictions:
- What are the financial performance forecasts?
- On what data are they based?
- Are the projections based on franchisor- or franchisee-run centers?
- How long have the centers used for projections been in business?
- What is the background of the franchisor's principals/management?
- What is their business experience?
- Have they personally had any bankruptcies?
- Have they personally had any recent litigation?
Obtain Professional Advice Concerning the Franchisor’s FDD and Franchise Agreement:
We recommend seeking the advice of an attorney and accountant who specialize in franchises. Pay special attention to these experts' opinions on:
- Agreement life and renewal provisions and conditions
- Termination clauses
- Franchise territory (if any)
- Procedures and restrictions
- Training and assistance
- Financial performance potential - gross sales, net profit.
Consider Expansion Plans:
- How fast does the franchise plan to grow?
- Where does the franchisor plan to grow?
- Does the franchise have a business plan for your area or location?
- What is their analysis of the competition in your area?
- How many units are being planned for your area?
- How much is going to be spent in regional advertising in your area?
Visit with Existing Franchisees and Ask Them About:
- The level of training they receive
- The quality of products or service
- The level and promptness of support provided by the franchisor
- Operational concerns and quality of the operations manuals
- Financial performance history/claims
- Any problems or difficulties with the franchisor
Visit the Franchisor:
- Visit the franchisor's headquarters:
- meet the support team
- review the operations manuals and see if you can sit in on a training class.
Work in an Existing Franchise
This is one of the best ways to learn the franchise system, manuals, training program, support, earning potential, etc.
Talk to Franchisees Who Have Exited
Finding out why franchisees who have left the system made their choice can inform you of the pros and cons of your potential franchise.