Top 20 Franchise Questions to Ask Before Buying a Franchise
Franchise questions to keep in mind
A franchise agreement is an expansive legal paper that is comprised of more than a hundred pages. Sometimes, even the pros are finding it hard to explain in simplest terms the content of a franchise agreement. However, if you know the right questions to ask as well as the right person to ask, then the process of obtaining a franchise becomes a whole lot smoother and easier. Buying a business is easy when you know where to look. Check out GlobalBX.com – they have over 36,618 businesses and franchises for sale. Best of all it’s a FREE site!
The answers you will get from existing franchise owners are as important as the ones you’ll receive from the franchisor. Here are some guide questions when purchasing a franchise – 12 for the franchisor and 8 for the existing franchisees.
Questions to ask a parent corporation:
1. What is the total cost of buying a franchise? You can find the amount you need to pay for the franchise fee and royalty fee, but for other expenses covering location, vehicle, and equipment, these are stated in values. For example, $200,000 to $500,000 that is actually an excessive estimate. It should be pretty easy for the franchisor to further narrow the ballpark figure based on real estate values in your location and other variables.
2. Do you have other franchises in the system? How many if you have are other franchises? You should know that the number of franchise in a system does not mirror the market standing of the franchise. You should not look at the number of franchises in the first place, but on the company’s history and its capacity to maintain a solid franchising system. Moreover, a high-risk offer can also be tempting. A lot of franchisors can give you franchising rights to an entire state or even to a national region.
3. Where are the franchise locations? In a nationwide franchise, you benefit from the company’s strong mass purchasing power. A regional franchise, on the other hand, may provide a better range of services and products based on local demand. Products and services that are in demand in either coast does not necessarily mean that it has the same turnout in the Midwest.
4. Are there locations that closed down? What are the reasons for closure? There is a law that franchisors need to follow regarding sharing of information on the number of franchisees that failed in their system. An honest franchisor should be open on these details and should be willing to expound on the reasons why some locations failed.
5. Were there any lawsuits in the past between the franchisor and franchisees? Such information is vital, for this can give you an idea how the franchisor handles issues with its franchisees.
6. How skilled is your management team? Understanding the upper management’s background and experience on the industry is really important when buying a franchise. Check if there have been turnover incidents within the corporate players of the franchise system. If so, it is possible that the franchise system is not yet established.
7. Who is you main competition? What is your advantage against competition? Even if you already know the answer to this particular question, the franchisor’s answer regarding his competitions can give you more insights about the franchise.
8. What will be my territory if I join the franchise? How is my business protected within the territory? To make your business successful, you need to avoid other franchisees in the system. Note that a small territory cannot possibly generate the cash you need to become successful.
9. How can the corporate team assist me in location selection? If you are planning to open a retail franchise, the location is a very important aspect that you need to thoroughly discuss with the franchisor and a real estate expert. You need to tour around your prospect areas and select a spot that has the optimal visibility and high traffic levels.
10. How much should I contribute in terms of expenditures and ad placements? Most franchise agreements already include the cost of national, regional, and local advertising and marketing campaigns in the royalty fees due monthly and annually.There are some franchises though that do not require promotional input from their franchisees. However, they can earn bigger sales when they listen to the advertising and marketing ideas of their franchisees.
11. What are the items or equipment that I need to buy directly from the franchisor? To ensure consistency and quality in the company’s standards, most franchises have a list of supplies and inventory to be given to all franchisees.
12. What happens if the parent company is sold? You must know the exit strategy of the company before you decide to buy a franchise. This way, you know the company’s plans beforehand, prompting you to prepare as well if ever ownership transition will happen.
Questions for franchisees that you need to remember:
13. How long before you start making profits? The franchisees’ answers to this question will surely give you an idea of what to expect. You should remember that not all franchises are the same, for they vary in clients, location, and business skills of the owners.
14. Was your opening cost in line with the amount you expected? The answer to this question gives you an idea of how much you’ll be spending on the opening day of your location.
15. Are you favorable with the support provided by the parent company? Since you’ll be expecting support from your prospect franchisors, this information is very important. Take into account any particular concerns of the franchisees.
16. Is the training enough? Once you have determined the training shortfalls experienced by other franchisees, you will be prepared to address similar issues during your own training period.
17. Have you encountered legal disputes with the franchisor? You have asked the same question to the franchisor, but it is best to hear the other side from the existing franchisees.
18. What do you think is the edge of the franchise to its rivals? The franchisees’ answers will most likely lead to a very valuable discussion of the company’s competition and how the franchisees rise above it.
19. Would you alter anything on the present promotional methods of the franchise? There are promotional campaigns that work and there are those that unfortunately fail.
20. Given the chance to do it all over again, would you still engage in this franchise? If you get a positive feedback, perhaps it is a wise move to buy the franchise. Move on to your next prospect otherwise.
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