Top 10 Questions To Ask When Buying A Franchise

On Behalf of Lanard and Associates | Aug 4, 2016 | Firm News

What Are The Top Ten Questions To Ask When Buying A Franchise?

The law requires franchisors to provide franchisees with a Franchise Disclosure Document (FDD) at least 14 days before they sign an agreement. The FDD includes important information, including a list of current and past franchisees with their contact information (item 20).

Current and past franchisees can be an invaluable resource as you consider this franchise opportunity. They know what it’s like to work with the franchisor, and they can offer the insight you need before you sign that Franchise Agreement (FA).

Let’s look at 10 questions you should ask franchisees before you consider buying a franchise. If you need further insight into potential red flags in an FDD or FA, the attorneys at Luther Lanard, PC are here to help. To request a consultation, contact our law firm today.

The 10 Questions You Should Ask Before Purchasing a Franchise

As you reach out to franchisees who are already in the system and operating the business, ask them these questions and be mindful of their responses.

1. What do current franchisees like and dislike about the support and training they received?

This will give you great insight into how much the franchisor supports new franchisees and whether or not a franchise gets set up for success.

2. Would the franchisee do it all over again if they had that option?

If they say “yes” or “no,” ask them why. The nature of their answer will help you evaluate the franchise opportunity rather than just a yes or a no. The franchisee may also offer insights into mistakes you can avoid when you’re starting out.

3. Does the franchisee think they are getting value for the royalty payments that they are making?

This will help you understand if the potential venture is worth the investment or if you’ll be losing a lot of potential revenue just on your financial obligations to the franchisor.

4. Did the franchisee find that the costs to open the business and operate it initially were in line with the Item 7 (of the FDD) list of expenses?

This will give you a great idea of whether the FDD underestimated its startup costs or if the information provided was accurate. Information like this offers a good understanding of your financial realities in the initial months of running the franchise.

5. What types of problems or issues did the franchisee face with the franchise?

Here’s another chance to learn from the mistakes or challenges that other franchisees experienced. This insight could help you identify issues you may not have thought of while weighing the franchise opportunity.

6. How many franchisees failed last year?

Note how many franchises failed in the last year, as noted in the FDD. Were there more closures than openings? Feel free to ask franchisees in the system what they feel about these numbers.

7. What do franchisees like best about working in this business? What do franchisees like least about working in this business?

This is an excellent opportunity to understand the ups and downs of running the franchise each day. Ask additional questions that may be useful to you along these lines you so you can get realistic expectations about running this type of business.

8. Is the franchisor open to new suggestions?

The franchisor-franchisee relationship isn’t always one-sided. Ask franchisees how their experience has been with the franchisor when it comes to new ideas and making suggestions for improvement. Figure out if these align with your values.

9. What support has the franchisee received from the franchisor besides the initial training that you were given?

After the franchise got off the ground, did the franchisor offer any additional training and assistance, or did they remain hands-off? Did the franchisee feel this was good or bad, and how did it impact business and regular operations?

10. What did the franchisee wish they’d known before they bought the franchise?

New franchisees and veteran franchisees may have different responses to this question. Their insights may give you a sound short-term and long-term perspective on your future as a franchisee and whether this opportunity is right for you.

How to Use These 10 Questions to Your Advantage

So you have 10 questions to ask franchisees. What do you do with these questions and their answers?

Armed with these 10 questions, we recommend speaking with as many franchisees as possible. If you have time to call them, go ahead and do it.

We recommend contacting franchisees that are in the system as of the date of the FDD. We also recommend contacting all franchisees who have left the system in the last year. A good mix of perspectives will help you make the best decision possible.

Do I Need to Ask the Franchisor’s Permission Before Contacting a Franchisee? 

No. You do not need the consent of the franchisor to call a franchisee listed in the Franchise Disclosure Document. Additionally, the franchisor does not need to set up the call with the franchisee. You can do this yourself.

As you make those calls, be sure to ask your own questions about running a franchise. Again, do that research and get the answers you need to make the best possible decision.

Do I Need a Franchise Lawyer to Review the FDD?

It would be extremely helpful to hire a franchise attorney to look for potential red flags and provide additional information and insight. At Luther Lanard, PC, our attorneys have more than 50 years of combined experience in franchise law, and we understand the business landscape in Florida, California, Pennsylvania, and Texas.

If you would like to speak with a franchise attorney about an FDD, a potential franchise opportunity, and how to make the best financial decisions as a new franchisee, contact our law firm today.