Questions Franchisors and Franchisees Should Ask One Another
10 Franchisor Questions
The franchisor should ask as many open-ended questions as possible. These kinds of questions can be revealing and provide insight into how prepared and capable the franchise candidate is. It can also indicate how well the person responds to an important subject or question the candidate hasn’t considered.
- In the event you need to invest more capital in the franchise, how much could you invest and where will it come from?
- Will anyone assist you in operating the franchise? What are their qualifications?
- What skills do you have that you believe will make you a successful franchisee? Do you, your partner or spouse have experience working in or operating a business comparable to this franchise?
- If some unforeseen event occurred that would prevent you from operating the franchise, who would you depend on to replace you?
- What are the major concerns you might have about being successful? Have you considered anything that could go wrong?
- Have you done a business plan, income statement proforma and cash flow projection? Are you utilizing the services of an accountant? What do you project your sales will be in six months after opening? After one year?
- What other franchises have you considered? Why have you chosen our franchise?
- Do you have any suggestions or ideas for promoting your franchise once you’re open? Any contacts or networking you can use to help generate business?
- How many franchisees do you plan on contacting to obtain feedback? Have you already spoken to any other franchisees? If yes, any comments regarding what they said?
- Do you have a long- term operational strategy for the franchise? Any interest in eventually acquiring additional franchises?
10 Franchisee Questions
Since the franchise evaluation process can be critical to a franchise owner’s future success, it’s important to gain as much information as possible. The answers to the following questions can provide a profile of the franchisor and what areas they view as important. For example, questions pertaining to the proposed franchisee territory can say a great deal about how a franchisor views this very critical component of the franchise program.
- If the franchisor doesn’t disclose any franchisee financial information, ask why they don’t disclose franchisee financial results in Item 19? Even without a financial disclosure, the franchisor can still provide cost and expense data. (Click IT, by the way, fully discloses financial information.)
- If the franchisee does what they are advised to do when operating its franchise but finds themselves having financial problems, can they expect some assistance from the franchisor? Has this franchisor assisted any franchisees, and if so, how so, or how willing are they and what would they do?
- Are there any franchise agreements listed in the FDD terminated? If so, who are they and why?
- What are the key 3-5 requirements for operating a successful franchise? Are there certain traits your most successful franchisees share?
- Did you conduct a market study for the proposed franchise territory? If not, why? Although there may not yet have been a detailed competitive review, does the franchisor know the major competitors the franchisee will encounter in the proposed territory? Is the franchisor familiar with the strengths and weaknesses of these companies? How do they configure and establish a franchise territory?
- How is the advertising fund administered? Are any of the franchisees involved? If no, then why not? If yes, then who are they? Does the franchisor provide a report on how the funds are used?
- What is the franchisor strategy for developing the franchise network? Do you try to place franchises in specific markets to build brand recognition? What about the state or market area being considered? What are the plans regarding these locations?
- What kind of assistance does the franchisor provide for site selection. Is there any construction support? If yes, does this cost additional money?
- How are disputes or issues between the franchisor and franchisees resolved? Is there a dispute resolution process?
- What support or assistance is provided to franchisees before or during their new opening?
When a franchisor grants a franchise to a new franchisee, it is entrusting the franchise brand name and reputation with the expectation that the new franchisee will be successful and contribute to the franchise network. From the franchisee’s standpoint, they are investing their money and time into a new franchise and risking their capital and future into building what they hope will be a successful franchise. In some cases, either or both parties may choose to move the franchising process at a fast pace. It’s important that this doesn’t happen, but rather both parties obtain as much information about each other, that includes asking the right questions.
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