How to terminate a franchise agreement
Although a franchisor will give you the tools,...
Opening a franchise is an exciting moment in an entrepreneur's life. If your investment pays off, you could have the fulfilling life you've always wanted.
Here are 10 questions to ask your potential franchisor to help you make the best decision.
This is the most important question you can ask as a franchisee, as your bottom line is likely the number one reason why you are considering opening your franchise. However, this is probably the most difficult question to answer, as well. Your best source of information might not be from the franchisor, but from other successful franchisees in the surrounding area (if possible). Carefully follow trends and make your business plan according to all information you can garner. Do your homework and research as much as possible to determine your potential profit margin.
There have been cases where franchisors offer minorities, women and veterans special discounts on royalties and franchising fees in order to help the business get started. Furthermore, ask if the franchisor is looking to expand into a specific geographical area.
Occasionally, franchisors will offer a smaller version of their brand so new franchise operators can hold on to an existing job long enough to keep afloat. Some also offer a reduced version that allows franchisees to try out the brand before committing.
Not all franchisors handle their fees and royalties the same. Most collect the royalties monthly, which is typically 4 to 8 percent of the gross revenue, while others have a flat fee, which allow larger returns for more enterprising franchisees. The majority of franchisors also have a collective marketing fund (typically 1 to 3 percent of gross revenue) which, in turn, is used to market the brand on a regional or national scale.
Your business' grand opening can make or break your future, so franchisors are typically very eager to help. Sometimes they will send out corporate representatives for ribbon cuttings and other "first day" events, and you can expect helpful promotional material, advertising campaigns, opening day giveaways and discounts, marketing, and additional funds.
Before you sign a contract, ask your franchisor how much time needs to pass before you're ready to open. This will help you get your scheduling set so you don't miss a beat.
Knowing who will be handling your concerns at the district and regional level can be a boon during the first few months of business. Make it a point to get to know these individuals as much as possible prior to opening.
While some franchisors leave the location specifics up to you, many have staff available to help you pick through the complicated process of finding a spot and negotiating your rent, which is often your single largest recurring expense.
Franchisors know that individuals who represent their business at the point of sale level can have a lasting impact on customer relations, and they will often be able to provide at least some limited training resources to make it easy to prepare your employees for work.
It pays to think ahead, so it's important to ask yourself where you see your life heading in the coming years and then reflect this to your franchisor. Will you be able to pass the business on to your children? Will the franchisor buy it back? Do they offer any help if you want to sell the business?