When I was researching which Franchises I wanted to invest in I must admit I was so excited about the brand and its product that I probably did not ask enough questions. But then again what questions would I ask a Franchisor? I was about to invest over a quarter of a million, dollars in a brand, so I should have had a list of questions to ask but alas I didn’t, mainly because I didn’t know what to ask. Let me help you not to make the same mistake. Here are six areas around which you should ask questions.
Lets face it, the real reason someone franchises their business is to make money. No harm in that, but before you start a relationship with your Franchisor be clear about their fees. Ask: What are the Royalty and Marketing Fees and are there any ongoing System Fees such as online training, software and mystery shops?
When it all boils down you are being chosen by the franchisor to represent their brand and product in your area. So the aim is to have a long term relationship and this all hinges around the agreements. Ask : What is the term of the Franchise agreement? Does it match the lease? What happens at the end of the agreement and do you require any major refurbishments during the either of these terms?
Buying a franchise involves a significant investment and you will need to either have access to cash or apply for a loan. Some franchisors have their own preferred lenders which saves you time and money. So ask: Do you have accredited lenders and is it possible to have security over the new business and its assets?
Your success as a franchisee is dependent on how the franchisor trains you to make and sell their product. You will be an ambassador of their brand, so how do you do this? Ask: What training is given in the start up phase and what support and training should I expect throughout the duration of the agreement?
When you enter this franchise agreement you will be expected to pay a franchise fee. This fee covers things like initial training, issue of the operations or procedure manual, which details every process that you the franchisee needs to know. The reason you are looking to buy a franchise is that it comes with a system and that you don’t have to spend time preparing staff processes and job descriptions, operation procedure guides and recipes, workplace health and safety procedures, customer service and marketing guidelines. So ask: How detailed is your operations manual, does it include a staff manual and a Workplace Health and Safety manual? Does it cover customer service and have operational procedure guides and recipes and a list of suppliers?
Whilst we are on supply, also ask: Who are the suppliers to the franchise and will you have to open accounts with these suppliers and give guarantees either personal or from a director? Is the Franchisor itself a supplier, and if so, can you have a price list of the goods they supply to the franchisee?
Finally, Do you want to enter a relationship with this Franchisor? Are they going to be easy to work with and are you entering a sound system with a great business model. So ask: Are there any legal disputes involving the franchise or the franchisor?
These questions should all form part of your due diligence but there are many more steps that you should take when completing your due diligence. A good place to start is by doing the Franchise Education Pre-entry Course here.
Elizabeth Gillam founder and CEO of Franchisee Success creates High Performance Franchisees. Having owned and operated three franchised food businesses; Boost, Healthy Habits and Bucking Bull; she knows what it takes to operate a profitable food franchise. In her recent book, Upsize your PROFIT – 6 steps to running a profitable food franchise she outlines how franchisees can ACE their franchised business unit. If you are not sure how to do your due diligence here is a link to help you on your way.