What questions should you be asking before you buy a franchise? Here’s a checklist of essential questions for every franchise buyer. This article first appeared in Franchise Business, an Australian franchise website. The points are as relevant here as well.
Ask the franchisor about the business
- How long has the business been franchised?
- How long was the business operating before it became a franchise network?
- How experienced is the franchisor team?
- What is your financial investment in the business?
- Who owns the intellectual property?
- What’s your vision for the business?
- When was the last brand refresh?
- What peaks and troughs are there in the business?
- Are there any financing arrangements?
- What working capital is required?
- Are there company owned units in the chain?
- What’s the franchisee turnover rate?
- How many franchisees fail?
- How many franchisees renew their agreements?
- Is your business a member of the Franchise Council of Australia?
- Has your business signed up to The Franchise Registry?
Ask the franchisor about franchisee support
- Can you demonstrate your capacity to offer ongoing support for franchisees?
- Is training included in the initial cost of the franchise?
- What marketing support is provided?
- Who will be the main point of contact for me as a franchisee?
- How do franchisees connect with each other in the network?
- How do you communicate with franchisees, and how often?
- How do you help underperforming franchises?
Ask the franchisor about the franchise agreement
- How long is a franchise term?
- What restraints of trade exist in the agreement?
- Is there any exclusivity with the agreement?
- How often will I need to refurbish the store or update equipment?
- How are online sales managed across the network?
- What happens if my business is not a success?
- What is the process for selling on my business?
Ask the franchisor about the franchise operations
- Is there a call centre for leads and how are these dispersed?
- How much control will I have over any ordering and choice of supplier?
- Will I get any help with staff recruitment and training?
- What minimum orders or benchmarks to I have to meet?
- How often is the operations manual updated?
- How is marketing material made available?
Ask the franchisor about the location
- Who finds the site?
- How are locations evaluated?
- Do you negotiate the lease with the landlord?
- Who will hold the head lease?
- Is there an optimum time to open a business?
Ask the franchisor about franchise selection
- What are the criteria you use to select franchisees?
- What do you think are my strengths and weaknesses as a franchise candidate?
Ask franchisees
- Why did your franchise succeed/fail?
- What are the strengths and weaknesses of the management and support teams?
- How does the franchisor handle conflict?
- When did you start taking a wage and how long did it take you to make a profit in the business?
- How many hours do you/did you work?
- Would you buy this franchise again?
- Can I work alongside you for a day?
Alongside these questions, it’s wise to consider your own role as a franchisee and how well-suited you and your family will be to operating your own business in a franchise network.
Franchise buyers will want to get as much detail about the investment, royalties and any other expenses too.
Of course there will also be legal and financial questions to ask your advisers .
Conducting thorough research or due diligence is an important part of the buying process.
Source: www.franchisebusiness.com.au