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.