Questions to Ask a Franchisor When Buying a FranchiseThose with an entrepreneurial spirit and seasoned business owners agree that franchises hold great advantages over independently owned businesses. So many of the "back office" concerns have been developed, tested, refined, and often even perfected. Most independent business owners can't devote the time or resources to compete with the operational and marketing systems that franchised models provide.
So buying into a franchise system seems to make a lot of sense for those who want to be in business for themselves but not by themselves. But how do you know what questions to ask franchisors as they present their franchise system to you with the ultimate goal of asking you for a commitment to join? This commitment involves signing a contract and a check.
Some basic questions are:
What is my total estimated cost to open?
Does this amount include working capital?
How many franchised units (stores or outlets) have failed and why?
How many people signed up with your franchise and were never able opened?
Who are the competitors and why would I choose you over them?
Do you provide any guidance, in writing, about what I can potentially earn?
What is my territory and how is it protected?
Do franchisees have a say in how our advertising dollars are spent? (Many franchises have an "Ad Council" made up of franchisees)
How does the franchisor make their money?
What materials or services am I required to buy directly from the franchisor?
These questions are a start and the franchisors' willingness to answer them should help you gauge their sincerity. The existing franchisees are often a more productive group to speak with. The existing franchisees-just like you-went through a research process with the franchisor and now are either reaping the rewards of franchise ownership or regretting their decision. You'll find that they are usually very willing to provide you with their thoughts, regrets, and opinions.