With the Franchising and Business Expo on recently I thought it would be timely to provide a list of questions prospective franchisees should ask as part of their due diligence.
As part of your due diligence it’s important you speak to the franchisor, existing franchisees and ex-franchisees.
What to ask franchisees and ex-franchisees
The franchisor must provide contact details for existing and ex-franchisees in the Disclosure Document, so it should be easy for you to get in touch with them.
As you investigate franchise opportunities you’re likely to have questions of your own that you’d like answers for, however to help you in the process the Centre has developed a list of questions to ask existing and ex-franchisees to get you started and help ensure you ask the right type of questions.
One question which is always good to ask franchisees is, if they had their time over whether they would still buy the franchise?
We also recommend you ask questions around the relationship between the franchisor or franchise head office and the franchisee or ex-franchisee.
Just with any partnership (whether personal or business) how the relationship works is important and you need to assess whether the likely style of relationship will suit you and your needs.
What to ask a franchisor
The Centre has also composed a list of questions to ask the franchisor.
Again, you’re likely to have a range of questions of your own as you explore franchise opportunities, and it’s worth noting that the answers to many of the questions you’re likely to have as you go through the early due diligence process will be included in the franchise disclosure document.
Further questions, outside of your own to ask a franchisor, that you may not automatically think of may be around the franchisor’s long-term plans for the business, both in Australia and internationally, as well as their role within the business and future ownership of it.
If a franchisor is planning to retire in the foreseeable future, it may change the direction of the franchise and is something you should be aware of.
It may also be of benefit to your due diligence to enquire about the average length of time that employees stay with the franchisor, and in particular field support personnel as they are likely to be your key contact within the franchise head office.
Also on the topic of field support you may like to ask whether the franchisor can provide a typical field support schedule and details of the frequency and nature of support available to franchisees.
It’s also important to ask whether the field support includes time spent with you when your business first opens, and if so, for how long and the type of support provided during that time.
To assist with your business planning you could also ask the franchisor what financial data they can provide you to assist you with putting together a detailed and relevant business plan.
Franchisors are naturally one of the best people to ask about the franchise and they are usually more than happy to answer any questions you may have.
Remember Franchise Agreements are legally binding documents, so it’s important you get all your questions answered before you sign on the dotted line.
Further due diligence tips
To assist prospective franchisees with conducting their due diligence effectively, and help ensure people are well-informed about franchising and what to expect as a franchisee, the Centre developed a free online pre-entry franchise education program.
The program is funded by the sector regulator, the Australian Competition and Consumer Commission and the lists of questions above are taken from Module Four of the five-module pre-entry short course.
To learn more about becoming a franchisee, do our free Franchisee Pre-entry Program kindly supported by the ACCC.