The Most Important Step When Buying a Franchise (Part 2 of 2)

11 Apr The Most Important Step When Buying a Franchise (Part 2 of 2)

This posting is a continuation of yesterday’s article.

Franchisee Feedback

The most important aspect of your franchise due diligence is to obtain feedback from current and former franchisees.

Speak with enough franchisees so that you have representative feedback. I would suggest a minimum of 8 to 10 franchisees. The more franchisees you speak with the more credible the feedback. You should speak with existing and former franchisees in order to gain a broader perspective.

Call franchisees in different parts of the country as well as in the geographic area you’re interested in. If you can arrange a personal visit to a franchisee it could be very helpful. Although many franchisees might be unwilling to spend the time, it’s worth a try.

An important note about franchisee feedback: There is a school of thought that considers information and feedback from exiting franchisees lacking in credibility. This opinion is based upon the belief that many franchisees fear retribution from the franchisor if they make negative comments about the franchise. In addition, some people are reluctant to acknowledge that they may have made a mistake when they purchased the franchise. Despite these comments, I continue to take the position that existing and former franchisees are the most reliable source of information for conducting due diligence.

Sample Questions

1. How long have you owned the franchise?
2. How did you come to obtain the franchise? Were you referred by another franchisee? Was it through an advertisement? Was it from a consultant or broker?
3. Has the franchisor fulfilled the requirements that they said they would when you first met them? In other words, has the franchisor basically done what they promised?
4. Depending on the number of years that the franchisee has owned this business, ask if they have seen the franchisor make appropriate changes or enhancements to the franchise program over time. Some franchisors do little to enhance the franchisee program, but instead, look to sell more franchises without reinvesting into the franchise system.
5. Has the franchisee had any disputes or issues with the franchisor, and if so, how were they resolved? Who resolved the dispute? This is important, since most franchisees have had some problems, whether minor or major. However, certain franchisees are reluctant to bring a problem to the appropriate level.
6. Find out what the persona or corporate culture is at the executive level of the franchisor. Obviously, this is going to depend on the size of the franchise. It is important to grasp a sense from the franchisees as to how they view the leadership of the franchise.
7. In terms of operating this franchise, were there requirements they didn’t anticipate?
8. Was it difficult finding qualified staff for their franchise?
9. Did the franchise meet the financial expectations of the franchisee? If not where did they fail?

Individuals considering a franchise need to perform a comprehensive evaluation of the specific franchise before paying their franchise fee and signing the franchise agreement. Investing in a franchise without performing adequate due diligence can be risky and can lead to future problems.