Franchise Research 101 - Questions to Help With Your Franchise

Franchise Research 101 - Questions to Help With Your Franchise Research

A Mutual Discovery

somekeyword is a mutual discovery. The franchise candidate (you) wants to see if the system works, and the franchisor wants to determine if you have the ability to operate the business. The process typically takes between 30 to 90 days, and includes a series of steps to explain the business and see if you're ready, willing and able. While you may be anxious and want to move quickly, patience is important. Don't rush the process and follow the process. That's really what a franchise provides, a profitable system that can be replicated.


Homework a must-

Prepare yourself for a few homework assignments. Items may include an application, a business plan, interviews and discussions with franchisees. This will hopefully build confidence with both you and the franchise that you possess the skills to be successful.

What to ask?

The problem for those new to franchising is you may not know what to ask- and when to ask it. Below are a few items and questions to help you with the process. Please note, these questions should be asked during the due diligence process but not necessarily right away. Take your time and be patient.

1. Ask for details of the start up costs including the initial investment, on-going expenses and working capital.

This information will be included in the somekeyword (FDD), however, the amounts can vary based on the location and market. Understand what is included in the initial investment including, equipment, training, software, marketing and inventory

2. Ask about the details regarding site-location. Do they provide assistance in finding a location?

Understand the space and location requirements. How many square feet is required and if there is a standard layout? Understand the cost for rent, common area maintenance, and the build-out requirements.

3. Understand the due diligence process - Discovery.

Most concepts will have a defined process. Understanding the steps can help set expectations and prepare yourself for questions. The process should feel like a mutual discovery between two people looking to form a -profitable partnership-.

4. Does the franchise provide assistance with financing? Understand the rate and terms and compare them with alternative sources.

The current lending environment is very challenging. Banks are very conservative in their lending requirements. It's a good idea to know your credit score. The ideal score is 700+.

5. Learn about the training process. How long does it take? Are there additional costs associated with training? Is there continuing education? Learn the details of on-going support once you have completed your training and opened your business.

The nice thing about franchising is in most cases you won't need experience in the industry. You will however need solid business skills including sales, management and customer service skills.

6. The FDD will provide a list of current and former franchisees. Speaking to franchisees (validation) is an important part of your diligence. Speak with both current and former owners, ask the franchisor if anyone has left the system and/or gone out of business. Understand the details.

7. What types of territorial restrictions and/or protections are provided in the Franchise Agreement?

The Franchise Agreement is typically included in the FDD. This is the contract you sign when you purchase the franchise. Learn about the size of your territory. You want to make sure your market does not get saturated. I recommend hiring a qualified franchise attorney to help review all documents.

8. Are there any provisions in the agreement where the franchisor can potentially compete with the franchisee?

I've seen agreements where a franchisor has the right to compete directly with the franchisee. While there may be exceptions, in my opinion that's a major negative and would prevent me from signing the agreement.

9. What are the arrangements, if any, regarding supplies and/or product for resale?

Some franchises will require you to purchase inventory through specific suppliers. If that is the case, negotiate your agreement to prevent having you pay above market prices.

10. Ask about the strategic vision and exit strategy of the franchise.

How many units do they plan on selling in your market and nationwide? What are the long-term plans for the franchise? Do they plan expanding internationally? Do you have confidence in their ability to successfully grow the business at a sustainable level?

11. Is there any current or previous litigation with other franchisees? How were they settled?

Lawsuits happen as a normal course of business. While I wouldn't discount an opportunity based on litigation, if you see a recurring pattern it's likely the sign of a problem.

12. Have any franchisees been forced to terminate their agreement?

Just like the previous question, look for transparency. Understand the reason why it happened and how things were settled between the parties.

This is just a guideline to help with your research. I always recommend hiring a qualified somekeyword and to consult with a CPA. The cost of their services is small relative to the franchise investment. As you go through the process you will face questions and details you won't understand. It's always helpful to have an extra set of eyes review the material. This can help structure the best deal and reduce the probability of a costly mistake.

Author bio: The author of this article has specialization in somekeyword. His enormous experience is summed up in the article -Franchise Disclosure Document brings the master plans for the Franchise Opportunities'. Along with this he also provides franchise consulting, development and brokerage services to both individuals and franchise systems.

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