18 Feb Ten Questions Franchise Candidates Shouldn’t be Afraid to Ask
Comment from Tom West:
Although, the article that follows was written for those interested in purchasing a franchise, it is great material for those that are considering selling franchises – whether new or resales.
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Before signing on that dotted line and paying the franchise fee there are certain questions that the franchisor should be asked. If you’ve already considered asking these questions, kudos to you, however, chances are you’ve missed these.
Despite the amount of resources available to franchise candidates, mistakes continue to be made and franchisees can and do fail. Although there are no guarantees to success, individuals can lower the risk of failure by adding certain questions to their franchise evaluation process. Here are ten questions that a prospective franchisee should ask the franchisor. I would suggest you ask these questions during various phases of your evaluation and don’t be reluctant to ask more than one member of franchisor staff the same question. Some questions are open ended and as such you should pursue until you’re satisfied with the answer. If you observe hesitation on the part of franchisor staff to answer or provide an adequate response these can be red flags. Finally, try to confirm the answers when you speak to franchisees.
- Do you disclose franchisee financial results? If not why? Although the franchisor won’t acknowledge it, a reason could be related to poor franchisee performance.
- Do you have an independent franchisee association? If no then why? (note: start-up or small franchisors are most likely to say no because of their small size)
- Have you assisted any franchisees financially? If yes what steps did you take?
- If I do what I’m told to do when operating my franchise and find myself having financial problems can I expect some assistance from the franchisor?
- Why were the franchise agreements listed in the FDD terminated?
- Can you give me a time frame when you expect a new franchisee to reach breakeven?
- What are the key 3-5 requirements for operating a successful franchise?
- What is the source of franchisor working capital? My accountant didn’t see any information in the financials indicating a credit line or possible other sources.
- Have you done or do you conduct a market study for franchise territories? If not why? As a franchisor shouldn’t you be knowledgeable about your major competitors?
- How is the advertising fund administered? Are there franchisees involved? If no then why not? If yes who are they?
