Questions To Ask A Franchisor

When I bought my franchise, I was so excited because it felt like I was at the beginning of a new chapter of my life - I'd left the corporate world behind and was starting up something of my own. If I'm honest, I was high on the excitement of it all. I also had a pocketful of cash from my redundancy.

Interesting combination - I was high on excitement and feeling flush with money. So I wasn't as cautious as I now understand you should be. I asked a whole bunch of questions - in fact the franchisor told me I asked more questions than anybody else!

But still I got the uneasy feel that...

Because I didn't know what questions you should ask. And that really is the challenge - exactly what questions are important?

You need to know all the details about:

Territory - will it be yours alone or will you share it with other franchises. There's a horror-story somewhere from a McDonald's owner in a major city in Australia who had another McDonald's open up opposite his store and his sales dropped by around 20%.

System - the major value in a franchise is the system. So how do they keep it updated and in line with modern trends? Do they update it regularly and to what do the last updates relate? Just make sure they care about the franchisees by keeping the system up to date!

Profitability - the thing I found amazing was the number of my fellow franchisees who were making so little money. Even though they had good turnover, they were spending all they earned to win more business and on their costs. Once I realised this, I saw there could be no going back. So when the franchisor is telling you about how much you could earn, ask to speak to franchisees who will tell you about profit, not just total sales. They are not the same thing!

Getting Customers - for some franchises the brand is so strong that if you just open up a store in town you will get enough trade from people passing by to make a profit. Other franchises have no recognised brand name and so have to work much harder to win customers. Talk to other franchisees before you buy, find out how they get their customers and how well the franchise system works to keep you busy and profitable.

Quality Control - Imagine that you buy a franchise and are doing ok. Then another guy buys a franchise in the area next to you and starts to get a bad name for letting people down, double-dealing etc. Can you imagine how the damage from his behaviour will spread to your business because you operate under the same brand? You need to find out how the franchise manage franchisees to ensure that nobody spoils it for the you. The saying that "one rotten apple spoils the barrel" comes to mind - and I saw this happen first-hand.

Loads of other stuff too! - Oh, there's just so much to ask a franchisor, I really could stretch each of these out into several sections and add a whole bunch of other things too. I didn't learn most of what I needed to ask until AFTER I bought. And as another thought, you also need to...

Because the franchisor won't tell you the whole truth. Why would they? They are looking to sell you something that will make them a lot of money. They are most interested in getting the sale and so don't want to tell you all the bad things that they know about.

Let's just look at that. If you were selling a car and knew it had a stain in the carpet, would you tell the buyer to look under the mat? It is human nature to be a little sparing with the truth when we are selling. If the franchisor is not going to tell you everything about the franchise, you need to find some franchisees to speak to.

Remember that you can depend upon franchisees to be at least 95% enthusiastic and positive about the franchise. If they were not, they would be admitting they made a huge mistake buying it in the first place, and nobody likes to admit to being a mug!

So you have to ask them questions that give you hard facts and ignore the enthusiasm that they speak with. That is tough, but it is important to stay as unemotionally involved as possible while you are evaluating your franchise opportunity. Consider the cost of getting the decision wrong!

Here are some good questions to ask them:

Have you met your financial goals that you set down when you bought your franchise? You want to listen to the clean yes/no, not the reasons they didn't!

What were the biggest problems in getting your franchise going? Listen to find out where the holes in the franchise are. If the problems are the same across all the franchisees you speak to, there is a hole in the system that needs plugging.

You need to be armed with a long list of questions to ask your franchisor and other franchisees. Don't be arrogant or ignorant or afraid of seeming stupid or niaive - you will feel a lot more stupid if you spend thousands on a bad business franchise.