During the Franchise Discovery Process it’s important that you get a well-rounded perspective of each franchisor that you speak with. The key to doing this is knowing what questions to ask.
To help you with, we have put together a list of seventy-one questions to ask franchisors, that will help you conduct a thorough Due Diligence and show the franchisor that you are a serious and intelligent prospective franchisee:
Questions About The Franchisor:
- When were you established?
- How long were you established before you started franchising?
- How many company owned units do you currently have?
- How many people do you have in head office?
- What support functions do they cover?
- What support do we get as franchisees?
- How many franchisees do you currently have?
- How many franchisees do you aim to take on a year?
- How do you choose your franchisees? What specific skills and traits do you look for?
- What are the skills and traits of your most successful franchisees?
- Are you able to provide franchisee testimonials and references?
- Are you happy for me to speak with existing franchisees as part of my discovery and validation process?
- Will you be able to provide a full list of franchisees with contact details?
- How many franchisee failures have there been in the last three years? What were the cause of these failures?
- Are you a member of the British Franchise Association? If not, why not?
Questions About The Financials:
- What’s included as part of my franchise fee?
- What other costs will there be in addition to the franchise fee? What do these costs cover?
- How much working capital will I need to get the business setup?
- How much capital will I need outside the franchise costs and working capital?
- How much are the royalty payments and when are they due?
- How are royalties paid?
- Will there be any other on-going costs other than the royalty?
- Do you have a marketing fund? If so, how much will I be expected to contribute?
- How long does it generally take to reach a level of break-even? Profitability?
- What are the average gross profit margins? What costs will I incur in arriving at net profit?
- Will you help me build an activity plan to reach my target level of income?
- Will my franchise business have a resale value?
- Can you provide a copy of the financial statements for the franchise?
- Can you provide anonymous financial reports for your franchisees?
- How have unit projections been compiled? How realistic are they to my chosen territory?
- What relationships do you have with high street banks?
- Do you provide financing for the franchise fee? If so, what are the terms?
- Do you have preferred suppliers for raising franchise finance?
Questions On The Business Model:
- What are the revenue streams for the business?
- Do you take any commission on supply of goods or materials to a franchisee?
- Do I have to purchase all or selected items from you? Does this apply to equipment?
- Will I be obliged to maintain a minimum fee or minimum purchase of goods? What happens if I fail to meet this commitment?
- Will I be obliged to purchase products or services from preferred suppliers?
- How often do you review these suppliers to ensure they provide the most value?
- What preferential rate do franchisees get from these suppliers?
- How much do you spend on advertising and promoting the services of the franchise? Do I have to contribute to it? If so, how much?
- How is the training structured? Where do I go for training?
- What support do you provide after training?
- In what format is the operations manual? Was this created in-house or by an outside professional?
- What happens if I don’t meet my projected targets?
- How will you help ensure that I meet my expected targets?
- What happens if I don’t meet my minimum targets?
Questions On The Franchise Agreement:
- How long is the franchise granted?
- What happens at the end of this period?
- Is there an option for renewal at the end of this term? If so, what costs will I incur?
- Am I able to sell my business? If so, what restriction will I have?
- Can I see a copy of the franchise agreement?
- Has the franchise agreement been prepared by a franchise lawyer?
- What are the key restrictions that I should be aware of?
- What happens if I decide that the franchise is not for me?
Questions About The Ongoing Support:
- Which members of the head office team will I be dealing with daily?
- How will they support me?
- Will I get to meet my main point of contact during the discovery process?
- How often can I expect to hear from head office?
- Will you perform regular audits on my performance? If so, how often? Is this the same for all franchisees?
- What mentoring do you have available for new franchisees?
- How much time do I get to spend mentoring with existing franchisees?
- How often do franchisees meet at conferences or regional meetings? What are the costs associated with these events?
Questions On Sales And Marketing:
- What sales and marketing activities do you include in the franchise fee for launching a fresh territory?
- How do you support franchisees in marketing their business locally?
- Do you provide a centralized website? What about a local website?
- How are you using social media to grow the franchise network?
- Do you provide centralized social media support or am I responsible for running my own social media locally?
Questions On Franchise Territories:
- What happens if I get a customer outside of my territory?
- Am I able to purchase a second territory should I maximize my first?
- What happens with national accounts?
See an overview of the Franchise Discovery Process here.
If you are interested in learning more about the possible opportunities in franchising, please schedule a time to speak with one of our Franchise Search Consultants and let us help you take the next step into business ownership.