Essential Questions to Ask Before Investing In a Franchise

This is an article from Franchise Business Review published Feb 13.
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Investing in a franchise typically requires a substantial commitment of money and time. It is not something to do without first finding out all there is to know about the opportunity you are interested in. One of the best ways to do so, is to ask both the franchisor and franchisees pointed questions and then analyze their responses.

To help provide you with a realistic idea of whether the brand can meet  your business and personal objectives, here are questions to ask:  

Questions to Ask Franchisors

  1. How long has the franchisor been franchising?
  2. What is the expertise/experience of the executive team?
  3. Is this business financially sound? Ask if they can provide three years’ of audited accounts and current management accounts and have your accountant look at them.
  4. How many existing franchise owners are there?
  5. How many franchise owners have failed? Why did they fail?
  6. What areas will you receive support in and how much support will be available to you?
  7. What data is there to prove the viability of the marketplace? Is there a long-term market for the products or services?
  8. Who are the main competitors and how do they compare to the franchise in terms of price, quality, delivery, and service?
  9. How much is the start-up investment and what does it include?
  10. How much will you have to pay the franchisor on an ongoing basis?
  11. What are the financial projections for your business?
  12. Is there a set territory? How does the franchisor prevent its franchisees cannibalizing business from each other?
  13. How long is the term of the franchise agreement? Can you renew it?
  14. Do you have to achieve minimum sales goals or to purchase a minimum amount of product?
  15. What will happen if you don’t meet these expectations?
  16. Can you sell the business? Are there any restrictions regarding doing so?
  17. How long does it take to be up and running once the agreement is signed?

Questions to Ask Franchisees

  1. Did the opening of your business go according to plan?
  2. How effective and useful was your initial training and is the ongoing training?
  3. How much support does the franchisor give you on a day-to-day basis?
  4. If you run into problems, does the franchisor help you solve them?
  5. Does the franchisor visit you regularly?
  6. How helpful are the operations and training manuals?
  7. If the franchisor supplies products, do they arrive on time and is their quality consistent?
  8. How long did it take to break even?
  9. When did you make a profit?
  10. What was your first year gross revenue? What is it now?
  11. Has turnover and profitability been in line with what the franchisor told you it would be?
  12. Does the franchisor facilitate franchisees interacting with each other? If yes, how?
  13. How helpful are the other franchisees?
  14. What do you wish you had known going into business that you did not?
  15. Is there anything you would have done differently?