Researching a franchise you are considering for purchase can be exciting - after all, this could be your new business and the beginning of a whole new career. However, it can also be a lot of work. You'll get much of your information from the franchisor but there will be other questions: How complete is the training provided? Will the initial marketing efforts be adequate? How long before I can start to see a profit? If only there was a way to find out the real answers to these questions . . . Wait! There is!
Talking with current franchisees in a system is not only the best way to really understand a franchise business, it is one of the most important parts of your due diligence. Those out in the field can provide the clearest picture of what it will like to be a franchisee of that franchise and can answer all the questions you may have.
When you contact a franchise company, the franchisor will provide you with their Franchise Disclosure Document which will list their current franchisees along with contact information. You will want to speak with a number of franchisees, preferably both successful and struggling business owners to get a good picture of the business.
To begin, prepare
a list of questions to ask each franchisee and then set aside a good chunk of time so you can do a thorough job of learning about this opportunity. By reviewing the responses and comparing your own management style to those currently operating stores, you will have a better idea of where you might end up if you purchase this franchise. Also, having a clear itinerary of subjects to discuss will not only help you by organizing your call, but will also allow you to keep the call from taking too much of the busy franchisee's time.
The following list will help you cover the most important areas of owning a new franchise. Be sure to add any additional questions you may have. Remember that your goal is to get a good feel for the business and how well the franchisor performs but you also don't want to take any more time on each call than necessary.
How well does the franchisor support the franchisees? This question comes first because the answer will make it obvious whether the franchise company has happy franchisees. A good franchise company will work continuously to keep their current franchisees happy and open communication is paramount. If the majority of franchisees feel good about the franchisor, it is a sign that the company is supportive, caring and focused on the success of their franchisees.
Besides overall support, be sure to ask specific questions about Opening Support. A franchise company can truly shine when it provides superior support to the new franchisee during the opening of the business. Ask the existing franchisees if they received assistance in (if applicable) site selection, lease negotiations, build-out and permit processes, or any other areas unique to the opening of the business.
Did the training provided by the franchisor adequately prepare the franchisee to open and run the business? If you hear from the franchisees that they were unprepared for some of the issues they faced, you could assume the training program needs more work. Keep in mind that training is usually enhanced from time to time because of franchisee feedback so if you do uncover any issues with training, find out if these have been addressed.
Was the estimate of the franchisee's initial investment accurate? Before calling any franchisee you should have read the franchisor's FDD, which will give you a wide range for the total initial investment that is required for opening this business. You can get a better feel for the investment required by talking to the franchisees and learning what they spent, and even more importantly, learning what they'd do differently if they could do it over again. Estimates will vary for a number of reasons but be sure to ask this question of franchisees that operate in markets similar to yours as you can get a better idea of the costs you will face opening your franchise.
Does the franchisee believe the national marketing programs are fair and effective? A tremendous benefit of belonging to a franchise is that you gain the brand/trademark recognition. To keep the brand top of mind with consumers, the franchisor will usually collect marketing dollars from each of their franchisees and spend the combined amount to promote brand awareness on a large scale. Find out how the existing franchisees feel about the way their money is spent but beware - this is the one area you are most likely to find some complaints. Because the fee is mandatory, not every franchisee will agree with how the money is spent. Balancing all feedback is essential in this area.
Ask the franchisees questions about their earnings. Discussion of earnings between a franchisor and a potential franchisee is strictly regulated and, if provided, will be listed in Item 19 of the FDD. But your best source for earnings information will be the current franchisees. Hopefully by the time you get to this question on your list, you will have developed a relationship with the franchisee and it will be comfortable for you to ask questions such as, "How long were you open before you showed a profit?" and "What is your typical net profit per month?" If you can't get a clear idea of what a typical unit earns, do not proceed with the purchase. You are not interested in franchising because you want to be surprised; you are buying a franchise because of the proven and provable value of the franchisor's system.
Current franchisees are not the only option for gleaning important information. You may want to talk to some former franchisees of the franchisor you are investigating. You will find the contact information of any franchisee that has left the system in the past year in the FDD. You will want to find out why they left the system and what kind of experience they had. If you compare the responses of these people to those of the successful franchisees, you may be able to see a trend that will help you determine if 1) you identify with one group more than the other and 2) if the success or failure of a franchisee is due more to the personality/experience of the franchisee or to the support/system of the franchisor.
In addition to calling the franchisees, some franchisors will let you listen in on franchisee conference calls or make visits to local franchisees. Take advantage of any opportunity offered because the more you learn from and about the current franchisees, the easier will be your decision to join or pass on this opportunity.
A franchisor's goal should be to have happy and successful franchisees. When franchisees are happy, they will attract more franchisees and the system will grow. If the franchisor is focused on something other than franchisee happiness, this is not an opportunity you will want to consider. Your best source for this information will be the current franchisees and through your discussions you should get a good overall picture of the opportunity as it applies to you and your future.
A FranChoice consultant can help you explore a number of franchise opportunities. You are invited to sign up for our free service HERE.
About FranChoice:
FranChoice is the leading network of franchise referral consultants in the United States. Since 2000, FranChoice has been providing a free service to those interested in franchise ownership. Our consultants guide prospective franchisees through all stages of the business ownership process, from franchise investigation to the final sale, matching each individual's interests, talents and investment level with a strong franchise business.
Talking with current franchisees in a system is not only the best way to really understand a franchise business, it is one of the most important parts of your due diligence. Those out in the field can provide the clearest picture of what it will like to be a franchisee of that franchise and can answer all the questions you may have.
When you contact a franchise company, the franchisor will provide you with their Franchise Disclosure Document which will list their current franchisees along with contact information. You will want to speak with a number of franchisees, preferably both successful and struggling business owners to get a good picture of the business.
To begin, prepare
a list of questions to ask each franchisee and then set aside a good chunk of time so you can do a thorough job of learning about this opportunity. By reviewing the responses and comparing your own management style to those currently operating stores, you will have a better idea of where you might end up if you purchase this franchise. Also, having a clear itinerary of subjects to discuss will not only help you by organizing your call, but will also allow you to keep the call from taking too much of the busy franchisee's time.
The following list will help you cover the most important areas of owning a new franchise. Be sure to add any additional questions you may have. Remember that your goal is to get a good feel for the business and how well the franchisor performs but you also don't want to take any more time on each call than necessary.
How well does the franchisor support the franchisees? This question comes first because the answer will make it obvious whether the franchise company has happy franchisees. A good franchise company will work continuously to keep their current franchisees happy and open communication is paramount. If the majority of franchisees feel good about the franchisor, it is a sign that the company is supportive, caring and focused on the success of their franchisees.
Besides overall support, be sure to ask specific questions about Opening Support. A franchise company can truly shine when it provides superior support to the new franchisee during the opening of the business. Ask the existing franchisees if they received assistance in (if applicable) site selection, lease negotiations, build-out and permit processes, or any other areas unique to the opening of the business.
Did the training provided by the franchisor adequately prepare the franchisee to open and run the business? If you hear from the franchisees that they were unprepared for some of the issues they faced, you could assume the training program needs more work. Keep in mind that training is usually enhanced from time to time because of franchisee feedback so if you do uncover any issues with training, find out if these have been addressed.
Was the estimate of the franchisee's initial investment accurate? Before calling any franchisee you should have read the franchisor's FDD, which will give you a wide range for the total initial investment that is required for opening this business. You can get a better feel for the investment required by talking to the franchisees and learning what they spent, and even more importantly, learning what they'd do differently if they could do it over again. Estimates will vary for a number of reasons but be sure to ask this question of franchisees that operate in markets similar to yours as you can get a better idea of the costs you will face opening your franchise.
Does the franchisee believe the national marketing programs are fair and effective? A tremendous benefit of belonging to a franchise is that you gain the brand/trademark recognition. To keep the brand top of mind with consumers, the franchisor will usually collect marketing dollars from each of their franchisees and spend the combined amount to promote brand awareness on a large scale. Find out how the existing franchisees feel about the way their money is spent but beware - this is the one area you are most likely to find some complaints. Because the fee is mandatory, not every franchisee will agree with how the money is spent. Balancing all feedback is essential in this area.
Ask the franchisees questions about their earnings. Discussion of earnings between a franchisor and a potential franchisee is strictly regulated and, if provided, will be listed in Item 19 of the FDD. But your best source for earnings information will be the current franchisees. Hopefully by the time you get to this question on your list, you will have developed a relationship with the franchisee and it will be comfortable for you to ask questions such as, "How long were you open before you showed a profit?" and "What is your typical net profit per month?" If you can't get a clear idea of what a typical unit earns, do not proceed with the purchase. You are not interested in franchising because you want to be surprised; you are buying a franchise because of the proven and provable value of the franchisor's system.
Current franchisees are not the only option for gleaning important information. You may want to talk to some former franchisees of the franchisor you are investigating. You will find the contact information of any franchisee that has left the system in the past year in the FDD. You will want to find out why they left the system and what kind of experience they had. If you compare the responses of these people to those of the successful franchisees, you may be able to see a trend that will help you determine if 1) you identify with one group more than the other and 2) if the success or failure of a franchisee is due more to the personality/experience of the franchisee or to the support/system of the franchisor.
In addition to calling the franchisees, some franchisors will let you listen in on franchisee conference calls or make visits to local franchisees. Take advantage of any opportunity offered because the more you learn from and about the current franchisees, the easier will be your decision to join or pass on this opportunity.
A franchisor's goal should be to have happy and successful franchisees. When franchisees are happy, they will attract more franchisees and the system will grow. If the franchisor is focused on something other than franchisee happiness, this is not an opportunity you will want to consider. Your best source for this information will be the current franchisees and through your discussions you should get a good overall picture of the opportunity as it applies to you and your future.
A FranChoice consultant can help you explore a number of franchise opportunities. You are invited to sign up for our free service HERE.
About FranChoice:
FranChoice is the leading network of franchise referral consultants in the United States. Since 2000, FranChoice has been providing a free service to those interested in franchise ownership. Our consultants guide prospective franchisees through all stages of the business ownership process, from franchise investigation to the final sale, matching each individual's interests, talents and investment level with a strong franchise business.
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