Questions That a Prospective Franchisee Should Ask a Franchisor
It is absolutely prudent to ask the Franchisor as many questions as necessary to ensure that you understand the complete picture of the franchise arrangement and relationship, after all you are entering into a partnership of sorts with the franchisor. So what are some of the questions that should be asked?
- Ask About the Franchisor’s Business and Network. How long has the Franchisor been using the franchising business format? How many franchisees are there currently operating in the network? What regions does the franchise network extend across. How quickly or slowly has the franchise network expanded over the years? How many franchisee business failures have there been, and categorically what are the reasons for such business failures? These sorts of questions will provide you with some colour around the Franchisor’s network, success rate, and approach to franchising. While it is not always the case, rapid growth with high failure rates can be indicative of the wrong approach to franchising. Alternatively, slow and steady growth over longer periods of time can demonstrate depth of experience and proper utilization of infrastructure to grow a successful brand.
- The Business, the Costs, Methods and Training. The Franchisor is likely to be, or previously has, operated one or more corporate locations of the franchised business. So, in addition to consulting with other franchisees, it is a good idea to ask the Franchisor about operating the business, tips and tricks, seasonal elements, best practice approaches etc. What kind of working capital is likely to be required for the first year, and subsequent years? Are all products to be purchased through the Franchisor and, if so, does the Franchisor make a profit on such supply? Is there a minimum purchase requirement with respect to supplies. Is there an operations manual provided, how detailed is it? What level of training is provided prior to opening the business? What follow up mandatory and voluntary training programs are available to the franchisee and its staff (and at what cost)? The more support that the Franchisor provides the better the chance of success.
- Location Location Location and Termination. Everyone’s hope and desire is that the franchise business is a success producing benefit for all parties involved. That said, it is worthwhile having a clear understanding of the consequences and options in circumstances where it doesn’t. How does the site selection process work, who identifies and determines the site? What happens if site selection turns out to be a poor decision? What are the options in those circumstances? Will the Franchisor permit a relocation? Who will pay for the costs, is it cost prohibitive to relocate? How often are franchisees (or have they been in the past) required to redecorate the site or replace equipment? Is there an out in circumstances where the franchise business is just not suited to your skills and abilities (contrary to all previous evidence to the contrary)? What are the options in circumstances where you want to terminate the franchise relationship early? These are some tough questions that may not spark the warmest of conversations with the Franchisor, but couched in the right terms of wanting to make fully informed decision will hopefully assist you in arriving at the right decision.
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