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Important Questions to Ask Before You Buy a Franchise

AllBusiness.com logo AllBusiness.com 7/12/2018 Deborah Sweeney

a person posing for the camera © BillionPhotos.com- Fotolia.com    Did you know that you must go through an interview in order to invest in a franchise? If you want to become a franchisee, your first order of business will be to speak with the franchisor (or a representative on their behalf).

The franchisor will ask you questions about your background and goals, if you have any existing experience in the industry, your plans for building a customer base and financing the franchise, and your exit strategy. While it may seem like a lot of questions, this is all about getting to know you in order to establish a relationship together.

However, you shouldn’t expect to interview with the franchisor alone; you should also speak with current franchisees. These franchisees will be able to provide further insight about what it’s really like to run a franchise—including the ups and downs of being in business.

If you’ve scheduled an appointment to interview and meet with the franchisor or current franchisees and have no idea what to ask, we’ve got you covered. First read the franchise company’s Franchise Disclosure Document (FDD), and then come prepared to your interview by asking these questions:

Sample questions to ask a franchisor

After the franchisor has thoroughly interviewed you and has a solid understanding of who you are, it’s time to do the same in return.

1. Will the franchisor help me find a good location? Depending on where you want to open your franchise’s doors, the franchisor should have an understanding of the best sites available in a particular area. They also may be able to help you pick the best site for your franchise and, if need be, assist with lease negotiations.

2. Can you tell me more about your training program? Beyond the procedures for training new hires, you should find out what’s involved in the company’s operational training program, and the types of additional support offered. Support can range from assistance during your grand opening to various types of ongoing support once your doors have opened.

3. Can you provide extra financial assistance? The franchisor may be able to assist you with your financing needs—or at the very least provide lender recommendations or support through the U.S. Small Business Administration (SBA). Beyond the initial franchise fee, Item 7 in the FDD outlines your additional expenses, which may include grand opening promotions, business and operating licenses, equipment, business insurance, and employee salaries. Other ongoing costs may also include advertising fees, accounting, and legal help.

4. How are disagreements resolved? While no franchisee wants to experience conflict with a franchisor, it could potentially occur. If there’s a disagreement between the franchisor and a franchisee, you’ll need to understand the best method for resolving it. Furthermore, it’s important to find out if the franchisor has had a history of disagreements—or pending lawsuits—with other franchisees in the past. You can learn about current or pending lawsuits of the franchisor  by reading Item 3 of the FDD.

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Outside of disagreements, you may also want to inquire with the franchisor what the contractual obligations, namely terminations and renewals, look like in your contact. Item 17 in the FDD touches on what franchisees must do to qualify for a renewal. A renewal is not an automatic guarantee from the franchisor, nor is possible that the renewal will keep to the same terms and conditions, so franchisees must ask if there will be any financial changes with their renewal of the franchise. If the franchise is terminated by the franchisor, you must ask about your remaining obligations to the franchisor. As an example, if you wanted to open up another franchise your contract may restrict the location and industry for the franchise.

Sample questions to ask franchisees:

Your conversation with a current (or former) franchisee may be a bit more laid back than it is with a franchisor since this is a franchisee-to-franchisee relationship. Ultimately, you want to get a better understanding of what a typical day in their world is like: the highs and the lows that come with owning a franchise.

1. What’s a typical day like for your franchise? The franchisee will be able to offer insight into the day-to-day operations that come with running that franchise, including success stories, challenging moments, and how much hard work, time, and energy will be spent on the business.

2. Are there any hidden fees? While you grill the franchisee on all things money—including the amount of time it took them to earn a steady profit—you’ll also want to inquire if there were any hidden fees or expenses. This will allow you to better financially prepare yourself to avoid any unwanted financial surprises.

3. What’s your relationship with your franchisor like? Keep in mind that the FDD will note in Item 20 whether franchisees have signed confidentiality agreements that keep them from speaking to you. If that’s the case, you may not be able to ask them about their relationship with the franchisor (or even chat with them, period). However, if the franchisee did not sign an agreement, they may be able to tell you if the franchisor has been supportive to their needs and has continued to reach out to them on a regular basis, which is a sign of a great franchisee-franchisor relationship.

4. Are you happy that you decided to become a franchisee? If you had to do it all over again, would you change anything? Pick another industry? Work with another franchisor? Or, are you content with the investment you made and wouldn’t change a thing? The franchisee will likely be honest with you about the decision they made—and hopefully, their answer is a positive one.

RELATED: 8 Warning Signs You Shouldn’t Buy a Franchise

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