When you buy a franchise, you’re not starting a business from scratch, but you still have work to do. Many new franchisees underestimate what it takes to succeed—they don’t realize there’s more to franchising than just picking a brand and opening a new location. Becoming a new franchisee is an uphill climb that requires a lot of time and effort.
Think of yourself as a mountain climber. You have tools like ropes, a pickax, and a harness, but now you need to start climbing. Success is waiting at the top and you just need to get there.
It’s much easier to navigate your route if you know what you’re in for. That way you can prepare ahead of time and sidestep these challenges with ease when they rear their ugly head.
Challenge #1: Building the brand
Joining a franchise isn’t a walk in the park. But even though it’s tough, it’s also exciting. You get to take an established brand and blaze a trail into uncharted territory. Your personal efforts are helping the brand find a new audience—and that alone should build your confidence and make you proud.
You’re building something with the support of a larger, experienced team and you’ll be wearing different hats every day. This work requires a hands-on approach, especially during the early stages.
Be prepared to invest a lot of personal determination, long hours, and patience. If you’re not ready for this investment, you might want to bow out. But if these requirements sound more like motivators than roadblocks, then you’re going to get a lot of value out of your franchisee role.
You’ll be tempted to fine-tune everything inside your business, but don’t get off track. This will prevent you from scaling the brand. Before committing to a marketing decision, ask yourself if it helps build the brand or not. You need to fill each day, week, and month with actions that create brand awareness and drive revenue.
If you’re unsure of where to start, here are a few tactics you can use to build your franchise and increase brand awareness in the market:
Use the franchisor’s existing sales and marketing tools.
Do guerilla marketing activities to generate brand awareness.
Network with fellow business owners.
Show appreciation to your customers.
Seek out referral partners.
Use paid advertising to support your efforts.
The biggest takeaway is to always work on your business. Don’t get stuck working in your business.
Challenge #2: Managing employees effectively
You could try to do everything yourself, but that would waste time and lead to burnout. Get help from trusted employees instead of taking it all on solo—but that’s easier said than done. The challenge here is to hire the right people to work in your franchise.
You don’t have the luxury of an HR department to hire and train new employees, but this lets you vet potential employees based on what your business needs. You have to build a team (and fast), but it doesn’t mean hiring anyone just based on credentials. Look for people who are independent self-starters that crave responsibility. These people will be your pillars as you grow. Remind yourself that you’re only as strong as your weakest link—it will keep your franchise afloat.
Hiring is only one piece of the puzzle. You must also find ways to motivate your team to grow the franchise and customer base. This allows you to test new methodologies and find what pushes certain people to be their best selves. Use the company mission to your advantage. Reiterate it constantly in your emails, meetings, and actions. Tell your employees how their work directly affects the success of this mission. You’ll hold them accountable and show them they’re more than cogs and make the whole operation run smoothly. Nothing motivates employees like knowing that their actions make a difference.
Company culture determines how the sales process works. It influences your customer service; it even helps potential employees decide whether or not they want to work for you. The toughest part about culture is creating it. The good news is you can adopt the existing culture from the brand—it’s already established. The unique challenge is bringing it to your market and adding local flavor to it.
The franchisor will share this vision as part of the business model, and you’ll be responsible for making it stick. Company culture will embody:
Strong core values
A direct mission statement
It’s everything that makes the brand tick—a succinct way to describe why the company is in business.
Remember that company culture goes beyond perks. It’s not about office ping-pong or free snacks. It’s about how your employees feel and how they operate. It’s important to get it right because your culture will shape your work environment. The ball’s in your court to make it happen.
When the right company culture is in place, you’ll see:
Better retention rates
A good company culture benefits customers as well. When the company’s culture resonates with an employee, they’re generally happier. Happier employees provide better customer service. It’s a win-win.
Get a leg up on the competition by knowing your challenges ahead of time
There’s a false statistic that convinces many people to become franchisees. It says that franchises have a success rate of approximately 90%. The study compares this to the 15% success rate for businesses started from the ground up and makes franchises seem like easy “get rich quick” opportunities.
I’m here to tell you that succeeding with franchising takes more than just an investment of money. Franchises require a lot of blood, sweat, and tears to succeed. They’re not easy to build, but there’s a light at the end of the tunnel. Franchises have a higher rate of success than independent startups. They also connect you with a new network of like-minded professionals. And they give you valuable business experience: You learn how to become a well-balanced business owner. Your hard work on your business pays off over time.
It’s not an easy path to take, but with the right mind-set and support system in place, you can understand how a successful business operates. The entrepreneurial lessons you learn along the way are invaluable.
Once you’re through these challenges, it’s an easier climb to the summit. You’ll still hit some rough patches, but at least you can divert your path and work around the big challenges.
Josh Cohen is the CEO and founder of Junkluggers. He founded Junkluggers out of his mom’s Dodge Durango 14 years ago and has grown the company into one of the largest junk removal franchises in the country. For Josh, it’s about much more than just hauling junk away. He has a greater mission guiding everything they do. Their B.H.A.G. is to ensure no junk collected by Junkluggers enters a landfill by 2025. They are completing the process now to convert their corporation into a B-corp, meaning that while they do strive for profits, they’re also driven by and held accountable to bettering the world.
Is your small business profitable and growing? Do you constantly get out-of-town customers wondering when you’re going to open a location in their neighborhoods? Are you secretly kind of bored running just one, smoothly operating location and want to feel the excitement of your startup days again?
If your answer to these questions is an unqualified “Yes,” maybe you’re ready to franchise your business—the key word is “maybe.” To see if you’re really in a position to franchise, ask yourself these six questions:
1. Do I have the standardized systems needed to franchise my business (or can I create them)?
To franchise a business, you need operational systems and processes that can be standardized to provide a consistent product or service by all franchisees. Standardization is also required to train new franchisees and their employees. For example, if you own an ice cream shop, do you have a written system detailing all the steps of serving customers, such as
How and when wash the ice cream scoop
Whether to put on gloves first
How much ice cream, hot fudge sauce, toppings, and other ingredients to use (such as “one full scoop” or “one-fourth cup”)
These little details are what can make or break a franchise’s success and profitability. If different franchisees serve ice cream differently, you could run across these problems:
Your ice cream cones and sundaes won’t be consistent, which will negatively affect your brand reputation. One location might serve heaping scoops of ice cream, while another might skimp.
Any locations that aren’t consistent about measuring and weighing ingredients will see less profits.
Unless there’s a standard process for serving, customers may wait longer, which hurts the customer experience.
Before you even think about franchising, you also should have an employee handbook and an operations manual and use them consistently.
2. Does my business rely on my personal presence?
This is a challenge for a lot of service businesses, especially those that began as one-person companies. For example, if you’re a talented graphic designer or hairdresser, clients might only want to work with you—not your employees, who they perceive as less skilled. It’s impossible to franchise with only one of you.
If you have this problem, you can pave the way for franchising by training employees to provide the same services you do (create an operations manual to teach them). Next, begin easing your customers into working with your employees instead of with you. Some ways to do this are by charging more for your personal services and less for services provided by employees (as hair salon owners often do) or by having employees handle all of your new customers while you keep serving your “regulars.”
3. Am I ready to follow all the rules and regulations to franchise a business?
Franchising is laden with red tape and regulated by both state and federal laws to protect franchisees. The FTC’s Franchise Rule requires franchisors to give prospective franchisees a Franchise Disclosure Document (FDD) before buying a franchise. This legal document often runs to hundreds of pages. It provides detailed information about 23 aspects of the franchise offering, including:
Initial and ongoing costs
Any litigation in which the franchisor has been involved
Background of the franchisor and its key employees
List of current and former franchisees and locations
Three years’ worth of financial statements
Your obligations as a franchisor (such as providing training or advertising support)
How franchise renewal, termination, transfer, and dispute resolution will be handled
Gathering all of this information and preparing the FDD document is time-consuming. It also requires legal assistance, which can quickly add up. If you don’t have the patience (or the finances) to meet the legal requirements of selling franchises, it’s not time to franchise yet.
4. Is there a market for my business idea outside my location?
Businesses that work in one city or state don’t always translate to other parts of the country where consumers aren’t familiar with the concept. For example, Hawaiian shaved ice would probably be a hard sell in Montana, and bagel shops took years to move out of New York and catch on in the Midwest. Before you try to franchise, do your homework to learn:
Is what I’m selling familiar in other areas of the country, or will I have to educate consumers on my concept?
Is there a good supply of my target customer base elsewhere in the country?
Is there a good supply of potential franchisees in the areas I’m considering? A concept that requires white-collar management experience might find more franchisees in a metropolitan area than a rural one.
5. Is my business financially successful?
Having one profitable location is just the beginning. In general, it’s best to have at least three successful locations up and running profitably before you take steps to franchise a business. The process of opening and running multiple locations will give you a good idea of what’s involved in opening franchises and helping them succeed.
Deep pockets are also needed to:
Complete all the necessary legal documents
Market your concept to possible franchisees
Hire salespeople to sell the franchises
Provide training and ongoing support for your franchisees
This can cost hundreds of thousands of dollars or more. If you can’t finance this internally, looking for a business loan to do so will give you a good idea of whether or not your franchise dreams are realistic.
6. Do I enjoy management?
If the hands-on aspects of your business is what keeps you going, you might be in for a shock when you franchise. You’ll no longer manage the day-to-day operations of one location. Instead, you’ll be more like a corporate manager, handling tasks such as:
Looking for new regions for franchise expansion
Creating marketing plans for your franchise
Meeting with prospective franchisees
Training new franchisees
Providing ongoing support for new franchisees
If the idea of taking on a management-oriented role fills you with dread, be ready to promote or hire a manager who can take charge of your franchising operations.
Franchising a business can be an exciting prospect for many entrepreneurs. You have found success locally, and are now ready to expand well beyond your home base.
But while the prospect of going nationwide is exciting, there are a number of issues to be aware of. That’s why we asked members of Young Entrepreneur Council (YEC) the following question:
Q. For anyone thinking about franchising their business, what is one crucial thing they should consider first?
1. Assess if there is enough demand
The last thing a new franchise wants is to see their franchisees fail. Make sure that your business has a great amount of demand before thinking about a franchise model. One way to determine demand is to pay attention to Google keywords mentioning your business. If you see a huge spike in people searching for your business in a certain city, then you know there’s interest there. —Syed Balkhi, WPBeginner
2. Understand what you need to control
Franchising is about control. You want to know exactly what is critical to the business’s success and what can be put aside. When you franchise a business, you need to set standards and controls which ensure the business’s success and protects the brand. You may have to give on some areas and choose what they will be, but if you are clear on this, then you are in control. —Baruch Labunski, Rank Secure
3. Determine if your business can be replicated
Franchising can be a great growth strategy for businesses that can be replicated fairly easily. It’s likely to fail if a business depends on the input of specific individuals or if its processes are hard to duplicate. Start by thinking about your business’s core processes, documenting them and considering whether they could be replicated by other people in a different location. —Vik Patel, Future Hosting
4. Research the potential
Not every business has franchise potential. Research the interest and demand for what your business offers to see if it can be replicated in multiple areas, and have the potential to be successful and grow. It may not be something that is sustainable. —Serenity Gibbons, NAACP
5. Consider hiring a consultant
Franchising your business is a complicated process, so consider whether you should hire a consultant to help you along the way. There are franchise developers you can hire, if you have the funds, who will simplify the process for you and make sure the transition occurs without a hitch. —John Turner, SeedProd LLC
6. See if you can step away from your core business
Franchising is about a process. You need to define literally every single step of your business, from which suppliers to use through how someone would greet a customer at the door. Before you franchise, see if you can step away from your current business. If you have defined your processes well enough so that you can be away for a week—and be happy with the results—then you’re ready! —Aaron Schwartz, Passport
7. Understand the franchise agreement
You should understand how the franchise agreement will restrict you from setting up a similar business. For example, many franchise agreements include a non-compete provision prohibiting you from conducting a similar business for a certain period of time within a certain distance of a franchise location, and stringent confidentiality provisions prohibiting you from contacting customers. —Doug Bend, Bend Law Group, PC
8. Determine if your business can run without you
If your business cannot operate without you, it is not at a stage where it’s scalable. You have to get your business to the point where you’re no longer involved in the day-to-day in order to consider scaling. —Rachel Beider, Massage Outpost
9. Document everything
It’s crucial that you document your entire process from start to finish before franchising your business. You want your franchisees to be as successful as you are (or more) so they can spread the word and you can get more interest. Even the smallest things should be documented, such as phone scripts, email templates, and anything they may need in order to succeed. —Jared Atchison, WPForms
Your business is special, so you want to make sure you’re establishing new franchises in the best location. For example, consider an area that is already aware of your brand and would be receptive to your business (but careful not to stay too close to home so it won’t interfere with your original business). Additionally, while a large city may be tempting, a smaller city may be less competitive. —Shu Saito, Fact Retriever
11. Make sure you have enough funds
Franchising is not cheap. I would know; I’ve built one. There are so many things to consider in terms of location, documentation, legality, and regulations. You won’t be able to do it without bringing on a consultant. Before that, though, ask a few questions. Can my business be simplified enough so that someone with only a high school degree could manage the entire operation? Who is willing to buy? —Nicole Munoz, Nicole Munoz Consulting, Inc.
12. Consider potential risks to your brand
While having franchises can be profitable, it also means that you give up quite a bit of control over your brand. Franchisees, while they need to adhere to certain conditions, are still business owners, and you can’t simply fire them if you don’t like the way they’re operating. When setting up a franchise agreement, make sure you specify standards and policies that protect your reputation. —Kalin Kassabov, ProTexting
13. Think systems-dependent, not expert-dependent
A systems-dependent franchise model creates a repeatable customer experience by relying on an extraordinary system that can be run by ordinary people, and not relying on the hopes that you’ll be able to hire extraordinarily talented experts at every location, every time. When your operations manual can be expertly managed by anyone, regardless of skill level, then you’re ready to make the leap. —Magnus Simonarson, Consultwebs
14. Start building your team now
Start building your team now. If you’re going to franchise and want to maintain your corporate culture, work environment, and a passion for your business, you’ll need to start looking for people now who are willing and able to take all of that on. Plus, they’ll need to learn a lot of that before they can put it all into practice. —Andrew Schrage, Money Crashers Personal Finance
Dennis Monroe had worked in operations management for over 30 years when he decided to buy a ColorAll franchise (an on-site auto body repair service) with his business partner. The pair owned and operated their ColorAll franchise in Phoenix, Ariz., for nine years before exiting the business and retiring. Looking back on his franchise experience, Monroe says he would do it all over again—but with a few alterations.
Labor challenges can cripple a business
“Our franchise was initially very successful,” explains Monroe. “We landed large, national accounts, but eventually, due to poor tech performance, the business went downhill.”
One of the reasons for his business’s decline was the unexpected challenge of having to hire skilled employees. “In our case the biggest problem was the unpredictability of auto body tech’s quality and responsible customer relations, which ended up costing us a lot of very profitable customers,” says Monroe. “I had no problem finding customers who appreciated the value and convenience of our service, only to lose many of them because of the tech’s job performance.”
Hiring can be a top challenge for many business owners. While it is often most pronounced in the food and beverage industry, where low unemployment rates and increasing wage pressures have left restaurants scrambling to find the help they need, it is prevalent across almost every sector.
In senior care, for instance, hiring challenges have been spurred by the rising numbers of aging Americans. “For national senior care franchises, recruiting thousands of skilled, dependable caregivers to match the specific needs of each family is no easy task,” says BrightStar Care, a national private duty home care and medical staffing franchise.
In the automotive space, hiring challenges are evolving as the automobile undergoes a rapid transformation, becoming more than just a transportation tool, but a “powerful digital device,” according to an article by PwC. While Monroe struggled with finding competent technicians, many in the automotive space today need workers with an entirely new skill set.
A common misconception of franchising is that all of the hard work has been done for you, but as Monroe explains, “You can’t depend on the franchisor to make your business successful. The corporate franchisor should provide training, startup support, national marketing, and name recognition, but it is up to the local franchisee to make the business work and create profitability with its customer base.” A large part of this, of course, is hiring.
Finding skilled workers who will represent your brand well and treat your customers right, while also providing excellent service, is a tremendous challenge for any business owner. However, as Monroe discovered, if you’re in an industry that depends on skilled talent, the inability to secure that talent can quickly cripple your business.
The franchise contract should be considered long and hard
While Monroe struggled with finding quality talent to keep his business afloat, he says that owning a franchise offered him great independence and personal satisfaction. The experience was so positive for Monroe, that despite his issues with underperforming technicians, he says he would do it all over again. He also says he would choose a franchise with less dependency on tech performance, and negotiate more favorable contract terms up front.
An attorney can help you evaluate terms in the franchise agreement and the company’s Franchise Disclosure Document (FDD). There is a lot of information covered in a franchise agreement and the FDD; a few areas that should be looked at closely include the royalty payment structure, the right to close, the right of first refusal, litigation statue of limitations, non-compete clause, and franchise territory, to name a few.
Not all franchisors will be open to negotiation. Still, it is always in your best interest as a prospective franchisee to evaluate franchise documents closely, and with the help of an experienced franchise attorney.
It’s also important for prospective franchise owners to speak with current and former franchisees during the research phase. The insights franchisees provide can be invaluable, and it’s advice that many franchisees willingly will offer to interested new owners.
As Cindy and Phil Bacon, franchisees of FASTSIGNS say, “Do your due diligence and contact as many franchisees as possible.” Heather and Seth Allison, franchisees of American Poolplayers Association similarly advise, “Talk to other franchisees first to get their perspectives, and make sure your franchise is well-established and highly rated.”
Franchise opportunities offer a pathway to business ownership—and potential profitability—for interested entrepreneurs. Choosing the right franchise and structuring your agreement so that it fits your needs long term can be a challenge, however. And this is why it is so important to speak with current and former franchise owners, who can offer a wealth of information and insight into the world of franchise ownership.
Eric Stites is the CEO and Managing Director of Franchise Business Review, a leading market research and consulting company specializing in franchise satisfaction and performance. Franchise Business Review’s mission is to work with the very best franchisors and franchisees to continuously improve system performance. Eric designed and created the Franchisee Satisfaction Index (FSI), which has quickly become an industry standard for measuring and benchmarking franchisee satisfaction. Eric is an active member of the International Franchise Association (IFA), serving on the IFA’s Franchise Relations Committee, as well as past Chairman of the VetFran committee
Investing in a franchise requires extensive due diligence. Not only do investors need to understand the initial costs and what financing options are available, but they also need to carefully research the franchise model, the franchisor’s experience, the franchisor’s approach to running the business, and the culture of the franchise.
Just as important as researching the franchisor, future franchise owners need to assess their personal strengths, weaknesses, and work/life balance aspirations to make sure the franchise system they choose matches their personality and long-term goals. The extra time put in during the due diligence phase will pay off in the end.
Here are five questions to consider that can help you make the right franchise investment decision:
1. How much will it cost?
The costs associated with buying a franchise vary widely, depending on the industry you choose and the brand within that industry. There are many low-cost franchises that start around $10,000, but the majority of franchises require investments of $50,000 to $200,000 to get started. There are also many with startup costs that are far beyond this range, especially those of well-known brands including fast-food chains and retail stores.
Understanding how much your initial investment will be and the associated fees will help you to narrow down the industries and brands you are considering. For example, the cost of entry for a brick-and-mortar retail store or fast-food chain is going to be significantly higher than the cost of entry for a home-based business.
Almost all franchisors require their franchisees to pay a one-time upfront fee know as the franchise fee. Ultimately, you are buying the right to use the franchisor’s brand and business model, while also receiving ongoing support in management, training, marketing, and more. In addition, with most franchises, there will be ongoing royalty fees, which usually are a percentage of revenue, to pay after the franchise is open.
Some franchisors offer incentives for women, veterans, and minorities. When you research the initial investment requirements, ask if there are franchise fee discounts. These types of incentives could make the difference in whether or not you can afford that franchise.
The franchise fee and startup investment cover the costs to open the doors of your business. Also remember to budget at least six months of operating capital while your business ramps up.
2. What are my financing options?
Most franchise investors bankroll their franchise through some form of self-financing. This could be a home equity loan, a second mortgage, using money from savings, or even withdrawing funds from a retirement account. Here’s a quick overview of some of the options:
Rollover for Business Startups (ROBS)—ROBS allows you to use money in your retirement accounts (401(k), traditional IRA, or another eligible retirement account) to invest in a franchise.
Small Business Administration Loans (SBA)—SBA loans are government-guaranteed loans. They are a great financing choice because they offer long repayment terms and low interest rates.
Financing through the franchisor—Many franchisors have relationships with lenders that you can leverage. Preferred lenders have an understanding of the franchise’s business model, and may be more likely to offer financing.
Home equity loan or line of credit/second mortgage—This is an option for homeowners who have equity in their home. You can borrow against the equity to help finance your franchise.
Family and friends—If you have family members or friends who are willing to invest in your franchise, this could be a fast (and low-interest) way to raise necessary capital.
It’s important that you evaluate the many financing options available before you make a financing decision. The good news is obtaining financing as a franchisee is often easier than as a new, independent business owner.
3. How happy are the current franchisees?
During the exploration phase, it is critically important to meet with and interview existing franchise owners. Current franchisees will help you understand exactly what the day-to-day looks like, what their major challenges have been, and whether their relationship with the franchisor has been up to par. They can also help you understand what costs, if any, have unexpectedly arisen.
Speak with as many franchisees as possible. They may be busy, but they will want to give you their time as they understand the importance of growing the brand they have personally invested in. The information gleaned from these interviews can be invaluable. Some questions you should consider asking are:
What has been the most rewarding part of being a franchisee?
What has been the most unexpected struggle?
How many hours a week do you work? Is that more, less, or about the same as you expected?
What is a typical work day really like?
Are you happy with the financial returns to date? Do you feel you are on your way to meeting all of your financial goals?
What was the franchisor’s role in helping you open your doors?
Is the franchisor accessible when you need them to be?
Has the ongoing training and support from the franchisor been adequate?
Would you invest in this franchise opportunity again if you had to do it all over?
4. What type of support and training does the franchisor offer?
Franchise ownership requires you to not only invest your money but also your time. The initial phases of getting a franchise business up and running can be challenging, and over time you will require guidance and support. You want to make sure you are joining a company managed by experienced professionals, who have created a proven model that will grow with your business.
Franchisors should provide training programs that cover all aspects of owning and operating a successful business, from initial and ongoing training and assistance to marketing and advertising support. Most franchise systems also provide local support through franchise field representatives.
Proper training and support is not only essential in helping franchisees achieve the success they signed up for, but it is also crucial to building a franchise system that is consistent from one location to another. Without that consistency, the brand is not likely to grow to the levels everyone is working towards.
Do your core values, abilities, and goals align with those of the franchise system? As a franchisee, you will be signing a long-term contract and be required to run your business as dictated by a prescribed set of guidelines. Franchisors can be very diligent about enforcing policies and procedures to maintain uniformity and ensure future success within a franchise system.
Here is what to consider when evaluating if a particular franchise is a good fit for you:
What are your personal goals for making this investment?
Does this franchise represent a particular field that you’re interested in pursuing?
How many hours are you willing to work?
Are you an independent thinker and worker, or do you work better when given some parameters?
Would you be happy operating the business for the next 20 years?
What specialized skills or talents will you bring to the business?
Does the franchise require technical experience or relevant knowledge?
Making the final decision
Buying a franchise is a big commitment that requires hard work and dedication. The most successful franchise owners are those who truly enjoy their business and putting in the time necessary to make it a success.
If you like the idea of being self-employed, and operating an established business, then a franchise may be the right opportunity for you.
Eric Bell has 15 years of franchise industry experience and currently serves as General Manager of www.franchisegator.com. He began his career in 2002 as a Hollywood Tans franchisee in Atlanta, where he also served as area manager and helped develop the company’s Atlanta territory. In October 2005, Eric joined Franchise Gator as a sales representative, and went on to hold several positions, including sales representative, sales manager, and director of sales and service. Eric is a member of the Southeast Franchise Forum and is a Certified Franchise Executive.
Did you know that you must go through an interview in order to invest in a franchise? If you want to become a franchisee, your first order of business will be to speak with the franchisor (or a representative on their behalf).
The franchisor will ask you questions about your background and goals, if you have any existing experience in the industry, your plans for building a customer base and financing the franchise, and your exit strategy. While it may seem like a lot of questions, this is all about getting to know you in order to establish a relationship together.
However, you shouldn’t expect to interview with the franchisor alone; you should also speak with current franchisees. These franchisees will be able to provide further insight about what it’s really like to run a franchise—including the ups and downs of being in business.
If you’ve scheduled an appointment to interview and meet with the franchisor or current franchisees and have no idea what to ask, we’ve got you covered. First read the franchise company’s Franchise Disclosure Document (FDD), and then come prepared to your interview by asking these questions:
Sample questions to ask a franchisor
After the franchisor has thoroughly interviewed you and has a solid understanding of who you are, it’s time to do the same in return.
1. Will the franchisor help me find a good location? Depending on where you want to open your franchise’s doors, the franchisor should have an understanding of the best sites available in a particular area. They also may be able to help you pick the best site for your franchise and, if need be, assist with lease negotiations.
2. Can you tell me more about your training program? Beyond the procedures for training new hires, you should find out what’s involved in the company’s operational training program, and the types of additional support offered. Support can range from assistance during your grand opening to various types of ongoing support once your doors have opened.
3. Can you provide extra financial assistance? The franchisor may be able to assist you with your financing needs—or at the very least provide lender recommendations or support through the U.S. Small Business Administration (SBA). Beyond the initial franchise fee, Item 7 in the FDD outlines your additional expenses, which may include grand opening promotions, business and operating licenses, equipment, business insurance, and employee salaries. Other ongoing costs may also include advertising fees, accounting, and legal help.
4. How are disagreements resolved? While no franchisee wants to experience conflict with a franchisor, it could potentially occur. If there’s a disagreement between the franchisor and a franchisee, you’ll need to understand the best method for resolving it. Furthermore, it’s important to find out if the franchisor has had a history of disagreements—or pending lawsuits—with other franchisees in the past. You can learn about current or pending lawsuits of the franchisor by reading Item 3 of the FDD.
Outside of disagreements, you may also want to inquire with the franchisor what the contractual obligations, namely terminations and renewals, look like in your contact. Item 17 in the FDD touches on what franchisees must do to qualify for a renewal. A renewal is not an automatic guarantee from the franchisor, nor is possible that the renewal will keep to the same terms and conditions, so franchisees must ask if there will be any financial changes with their renewal of the franchise. If the franchise is terminated by the franchisor, you must ask about your remaining obligations to the franchisor. As an example, if you wanted to open up another franchise your contract may restrict the location and industry for the franchise.
Sample questions to ask franchisees:
Your conversation with a current (or former) franchisee may be a bit more laid back than it is with a franchisor since this is a franchisee-to-franchisee relationship. Ultimately, you want to get a better understanding of what a typical day in their world is like: the highs and the lows that come with owning a franchise.
1. What’s a typical day like for your franchise? The franchisee will be able to offer insight into the day-to-day operations that come with running that franchise, including success stories, challenging moments, and how much hard work, time, and energy will be spent on the business.
2. Are there any hidden fees? While you grill the franchisee on all things money—including the amount of time it took them to earn a steady profit—you’ll also want to inquire if there were any hidden fees or expenses. This will allow you to better financially prepare yourself to avoid any unwanted financial surprises.
3. What’s your relationship with your franchisor like? Keep in mind that the FDD will note in Item 20 whether franchisees have signed confidentiality agreements that keep them from speaking to you. If that’s the case, you may not be able to ask them about their relationship with the franchisor (or even chat with them, period). However, if the franchisee did not sign an agreement, they may be able to tell you if the franchisor has been supportive to their needs and has continued to reach out to them on a regular basis, which is a sign of a great franchisee-franchisor relationship.
4. Are you happy that you decided to become a franchisee? If you had to do it all over again, would you change anything? Pick another industry? Work with another franchisor? Or, are you content with the investment you made and wouldn’t change a thing? The franchisee will likely be honest with you about the decision they made—and hopefully, their answer is a positive one.