5 Great Questions To Ask Franchisors Before Buying A Franchise



Questions To Ask Franchise Company Executives

If you’re looking to become a franchise owner, there are several ways to increase your chances of success. One way is to arrange some time to talk with franchise company executives, and if possible, the president of the company. And you need a list of the right questions to ask franchisors — important questions.

I’m not talking about the obvious points when buying a franchise, such as “can I get a list of franchisees?” or “how much is the franchise fee?” Those types of straight forward, factual points will be uncovered by the franchise disclosure document during due diligence.

Rather, the most important questions to ask a franchisor uncover non-obvious insights. They tell you what the documents and numbers do not.



5 Critical Questions to Ask Franchisors

I’ve come up with five questions that most people I’ve consulted with never thought to ask the franchisor before buying a franchise. Here is the best list of questions to ask franchisors:

1. What problems have your franchisees experienced?

Ask for specific examples of problems that the brand’s current franchisees have experienced. The second part of this question is, “how have your franchisor employees jumped in to help out?”

With this question you are trying to find out how good their support team is. There should be some great “stories” of how they were able to alleviate a franchisee’s problems.



The nature of the problems will also be insightful. Do the problems sound like ones you could face, or do they scare the daylights out of you? Do the problems indicate a red flag in the franchise system?

2. What types of people have you found to be super-successful as franchise owners?

You also want to ask the follow-up part of this question. And that is, “what types of people have been below average in success?”

You are trying to find out if there are any patterns that you can detect with either the really successful franchisees, or the ones who have not done so well. A pattern may indicate something that tells you whether you would fit in. A negative pattern may suggest an inherent problem with the franchise system.

Remember, there are questions to ask franchisees directly, also.



3. What are some reasons you have turned down prospective franchisees?

Here, you are trying to find out how serious the franchisor may be about recruiting the best franchise owners. You want to sign with franchisors that have high standards. Their desire for excellence should help inspire your own.

If franchisors approve just about anyone, it may lead to a high rate of failure with franchisees. It also suggests the franchisor business is not in demand by franchisees. Why? Because if demand were high they could be more choosy.

If it is a new franchise start-up, the franchisor may not yet have experience with many applicants. But it’s important to ask that, too.

4. Can you tell me about ongoing litigation with franchisees, if any?

The follow-up to this question is, “if you’ve had any litigation in the past, can you share what it was about, and how it ended up?”



Lots of companies experience the many pleasures of lawsuits. A lawsuit alone is not a problem. You’re trying to go deeper. What you want to find out is how the franchisor reacted to the situation and whether lawsuits signal a serious underlying issue with the franchise system, a bad attitude toward franchisees, etc.

Who sued? Is it one franchisee suing, or many franchisees complaining about the same issue? What really happened?

Ask the franchisor executive this question by phone call or video conference. Listen carefully to the answers.

Do you hear a lot of anger and emotion? Does it sound like the franchisor takes a scorched earth approach to the smallest disputes with franchisees? Or does the response convey that it’s simply a routine business disagreement?



5. Are there any major technology or equipment upgrades planned?

Upgrades could be equipment upgrades that the individual franchisee has to pay for. You’d want to know that. Or it could be a major technology upgrade that the franchise company pays for.

Future plans could address an upgrade sorely needed to improve franchise systems and support franchisees better. An upgrade could involve software necessary to compete and make better use of the advertising fund, marketing fees and royalties you will have to pay the franchisor.

The franchise disclosure document you receive will outline current support obligations and costs. What you are trying to find out is if anything in the future is likely to affect how you operate your small business.

Do Thorough Due Diligence

Questions like the five above are not commonplace. That’s the point. The more you can learn before you invest, the better you’ll feel when you write a $35,000 or $50,000 check for the up-front franchise fee to the franchisor.



These five are not the only franchising questions to ask, of course. But you may not even need to ask franchisors many common factual questions because they actually are answered by the disclosure document. This document is often hundreds of pages long and packed full of information required by law.

Due diligence is a process you as the franchisee will go through before signing the franchise agreement. It’s a period where you dig deep to find information about a franchisor and the franchise opportunity. You should spend a great deal of time researching a franchise. You will have a chance to ask clarification questions.

It’s Important to Develop a Relationship to Get Answers

Well thought-out questions can have a huge impact on your decision on franchise opportunities. Don’t be afraid to ask — just phrase them the right way, with a spirit of trust. Also, it’s also important to develop a good relationship with franchisor executives, first.

How you communicate matters. For pointers, see: How NOT to Talk to Franchise Company Executives.



Franchisors need to also develop trust with franchising candidates. Employees of the franchisor company you are researching may or may not be able to answer some, or even all of the above questions. If they can’t, they should at least be willing to go the extra mile to get answers.

Here’s a true story that explains why the franchisor’s attitude also is critical.

Recently, a franchise candidate of mine submitted an amazing list of franchise questions to ask the franchisor. The franchise director came back with answers to everything within 24 hours. Even I was impressed.

My candidate is getting ready to visit the California headquarters of this franchisor for franchise discovery day, and make a yes or no decision. Do you think his desire to go further in the process had to do with the way the franchisor consciously chose to handle him? (A guy who just wants to make sure he’s doing the right thing for himself, and his family.)



Update! The gentleman who visited franchise headquarters in California decided to become a franchisee and sign the franchise agreement. His in-person visit with the franchise organization mirrored the phone and email exchanges that took place during his information gathering stage. His expectations were met. (According to my franchise candidate, they were “exceeded.”) In the end, that’s all he wanted.

The entire business world is becoming more transparent. Allow me to rephrase that. The entire business world is learning that transparency is really the way to do business. Not many industries will be able to escape this fact in the near future.

Consumers can’t be “slammed” into making purchases anymore. They want to feel that they are in control of the buying process like never before. Companies that understand this will be successful ones. Companies that allow the buying process to happen naturally, will win. Companies that refuse to adapt to our rapidly changing buying environments, will fade away.

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Image: Depositphotos  17 Comments ▼



Joel Libava Joel Libava is the Franchise Expert for Small Business Trends. Joel, The Franchise King®, equips today’s prospective franchise owners with time-tested, proven techniques designed to increase odds of success. He does this through one-on-one coaching, and gobs of useful content that can be found on places like Small Business Trends, SBA.Gov, and his award-winning franchise blog, The Franchise King Blog . He’s been featured in Entrepreneur® magazine, and is frequently called upon by national media outlets and publications for his no-spin insights into the world of franchising.

17 Reactions
  1. Hey Joel,
    What a useful set of questions to consider when buying or evaluating a franchise. Some of these, with appropriate twists, would also be helpful questions to ask a potential vendor. There’s so much at stake in beginning a new company — and the franchise is often tested, but for the new owner-to-be, it is still a new company. Thanks for putting yourself in your franchise buyer’s shoes and trying to solve real problems and challenges they face in the decision-making process.
    TJ

  2. Hi Joel,

    Just wanted to say thanks for mentioning the book and great post.

    Best,
    John C. Havens

  3. >> What types of people

    Interesting article. As a former franchise holder (and on several occasions, a possible franchiser), I can attest to the power of a great system for helping to create great opportunities for the right people.

    But this “What types of people…” question is not only wrong, it is very dangerous. Like the oft debated “What type of person makes a great leader?” There is no way to know with certainty.

    IMNSHO, you just cannot look at others and their track records to determine your ability to succeed. Yes, you can look at trends and learn from others, but it almost always comes down to the individual’s desire to succeed and willingness to do whatever it takes to achieve that success.

  4. Jeff,

    Thank you taking the time to read the post and comment. The “What types of people” question IS an important one. I guarantee that if a franchise candidate of mine makes 10 random phone calls to franchisees of the concept that he or she’s interested in, and he/she feels no connection with most of them, the system is probably not going to be a fit for he/she.

    As humans, we tend to do better in systems that bring commonalities together. If my candidates have some things in common with existing franchisees of a particular system, the chances that there will be a good fit do increase.

    Why do you think 12-step programs are so successful? It’s because the folks in those groups have a lot in common. If they didn’t the programs just wouldn’t work as well as they do.

    The Franchise King

  5. Joel

    You say potato, I say root.

    First, my research finds, “The Harvard Medical School says that the vast majority of the people who successfully quit drinking for a year or more — eighty percent of them — do it alone, all by themselves, without any treatment program or support group.”

    I am simply suggesting that this one question is not on par with the other four. I can appreciate you have found otherwise. For me, it is too subjective.

    But thanks for your response.

  6. I have been in the franchising business for years and have had the chance to interview many franchisee applicants. It is astonishing what they DON’T ask even as they prepare to lay down serious money and commit themselves to a long-term contractual commitment. If you are talking to franchisers, ask these questions and consider reacting as I suggest:

    1. Who, specifically, are the customers your business model targets? If the response is “whoever drives by” or “gee, you ought to know that everybody needs a haircut,” make a quick getaway.

    2. What, specifically, are the products and services your business model focuses on? If the response is “we try to take care of all of our customers’ needs” or “gee, there are literally hundreds of different health care products, aren’t there?” close your checkbook and leave immediately.

    3. How do your business processes and procedures add to the products and services you offer to create the perception of value in the customer’s mind? If the response is “we have the lowest prices in the business” or “customers just seem to love us!” head for the nearest exit.

    4. What are the three most important contractual requirements you, as franchiser, will require of me, the franchisee, and how will they contribute to the profitability of my business? If the response is…well, you get the idea.

    My point is that if a franchiser does not have a straightforward business model that can be clearly explained in reasonably simple language, then you should look for something else to do with your time and money.

  7. Also remember that by asking the franchise employees you may be getting only one side of the story. It came up in the comments and I would reiterate it, you need to talk to actual franchise owners. They’ll give you the other side of the story and help you make an even more informed decision.

  8. Ralph,

    Thank you for adding more questions to be asked.

    I’m sure the Small Business Trends Community appreciates it.

    The Franchise King

  9. Jeff,

    Do they stay stopped?

    The Franchise King

  10. As one who bought a franchise system and was disappointed in the outcome I’d also suggest asking questions or doing research to determine:
    – What’s the balance between the franchisor selling franchises and supporting the franchisees to succeed?
    – Does the franchisor have brand awareness and true and active leadership in the industry?
    – Can you, as the franchisee be willing to follow their system and subject your way of doing things to theirs…or are you independent minded to the point that you will want to operate your way?
    – How reputable, supportive and effective are their suppliers?
    – Do you really need to buy a franchise to be part of a successful brand, or would you be better off building your own personal brand? Anyone considering a franchise investment should first read Gary Vaynerchuk’s book, “Crush It! Why now is the time to cash in on your passion.”

  11. Greg,
    Thank you for adding your ideas to the mix. It’s true that some franchisors sell franchises better than they support them.

    I avoid those.

    Gary’s book was very good.

    The Franchise King

  12. First of all after following Joel’s website I’m not sure you will find a person who knows more about franchising than him. He also is extremely passionate about the franchise world and I think the 5 questions above are exactly what a perspective franchisee should be asking the franchisor. I also think Greg brings up some great questions as a former franchisee. However, if a franchisee doesn’t ask these questions then the franchisor has an obligation to address the issue of what exactly is required of the franchisee and what kind of support will be offered by the franchisor.

  13. David,

    Thanks for reading the post, and of course, thanks for the compliment.

    If all of us focus on doing the right things, at the times they most matter, we’d all be more successful.

    Be transparent. It’s ok to do so.

    The Franchise King

  14. I’m a bit late in hear with a comment, but after reading the post i wanted to add one idea. I’m actually a franchisor so have a particular set of insights into this, but if I were a prospective franchisee I would actually ask if it was possible to get a reference from an ex-franchisee. Things can always go wrong, however, a good franchisor should actually have managed to stay on positive terms with an ex-franchisee, they don’t have to be the best of friends, but the whole termination process should have been ethical and fair. From my point of view a franchisor that is even supportive of ex-franchisees is going to be one you know you can rely on. It’s rule of thumb i generally try and follow, getting a reference from people you know a company wants you to get a reference from is no good. Wherever possible i try and find ex-clients to get references from.

  15. Informative article Joel and insightful/helpful comments. Thank you.

    Laurel

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