Questions to Ask Before Buying a Franchise
If you’re reading this article, you given some serious thought to buying a franchise and are ready take it a step further.
Although less than 20 percent of franchises fail, as opposed to 60-80 percent of new businesses that fail, it’s crucial that you do a thorough investigation before jumping into anything. There is too much money at stake and too much for you to lose to do otherwise.
The best way for you to get the answers you need is to ask the right questions. In this case, what you don’t know can come back and hurt you.
To Ask the Franchisor:
Of course in addition to specific money and legal issues, which are covered in the Franchise Disclosure Document and the Franchise Agreement, you’ll want to ask the following:
- Is the franchise profitable?
- Is the business being supported by continuing royalties, or is it coming in mostly from initial franchise fees?
- How has the franchise been growing? Are new locations added on a regular basis?
- Are sales among other locations increasing?
- Have any locations failed within the last few years? What were the reasons?
- What criteria do you use to select franchisees?
- What is the total investment required?
- What types of people have had the most success as franchise owners, and what types have been below average?
- Is there an exit strategy in place if things don’t work out?
To Ask Franchisees:
For a more accurate picture, talk to as my franchisees as you can.
- How long have you owned a franchise?
- How long did it take you to break even?
- Are you profitable? How long before you started making money?
- How much was your total investment?
- Were there costly mistakes made? How can I avoid them?
- Is there ongoing support offered to you once you complete the initial training?
- How is the communication between franchisor and franchisees?
- What is it really like to work in this business?
- What’s the most difficult part of owning this franchise?
- Are there expenses you weren’t aware of when opening?
To Ask Yourself Just Before Purchasing:
Even after talking to the franchisor and franchisees, there is still plenty of work to be done in terms of self-evaluation.
- Have all of your questions been answered?
- Are you prepared to give up some independence in exchange for the advantages the franchise offers?
- Do you have the financial resources required to buy a franchise? If not, where are you going to get the capital?
- Have you carefully read over the Franchise Disclosure Document and franchise agreement?
- Have you had a franchise attorney and accountant review all of the documents?
- Is this something you can see yourself happily running for several years or until retirement?